Mock Test 1

A key difference between management accounting and financial accounting reports is that
management accounting reports tend to:
1. be forward-looking
Correct answer
2. have longer reporting intervals
3. rely more on objective, verifiable evidence
4. be more general-purpose.

A list of assets and claims for a business at the end of its second years trading are presented
here.
Plant and machinery £120,000
Inventories £50,000
Bank overdraft £30,000
Trade receivables £40,000
Long term loan £60,000
Buildings £150,000
Cash £10,000

What is the value of the equity at the end of that year?

1. £340,000
2. £260,000
3. £320,000
4. £280,000

A machinery acquired at a cost of £225,000, expected to be in use for five years, with no
salvage value, is to be depreciated equally over its useful life. Annual depreciation then is:
1. £45,000
Correct answer
2. £112,500
3. £22,500
4. £80,000
A statement of financial position aims to meet various user needs. Which ONE of the
following user needs does it NOT aim to meet?
1. Revealing how profit for the period was generated
Correct answer
2. Assessing the relationship between assets and claims
3. Providing a basis for assessing the wealth of the business
4. Assessing how business was financed and how funds were deployed.

Accounting primarily exists to help user ………………..

1. decision making
Correct answer
2. understanding
3. analysis
4. evaluation

Fill in the blank spaces below.

The text states that accounting is concerned with information identification, recording,
……………….. and ………………. of financial information
1. Option 1
recording, preparing
2. Option 2
analyzing, evaluating
3. Option 3
analyzing, reporting
Correct answer
4. Option 4
evaluating, recording

If the total assets of a business equal £856,800 and its total liabilities amount to £316,800, its
equity will amount to:
1. Option 1
£540,000
Correct answer
2. Option 2
£856,000
3. Option 3
£223,200
4. Option 4
£633,600
In a statement of cash flows, the cash generated from day-to-day trading activities is known as which ONE
of the following?
1. Cash flows from operating activities
Correct answer
2. Cash flows from normal activities
3. Cash flows from trading activities
4. Cash flows from ordinary activities
Items produced are reported at cost or net realisable value until the point a buyer is found and the price
agreed. Which concept would be relevant to the above statement?
1. Materiality convention
2. Prudence convention
3. Realisation rule
Correct answer
4. Accruals rule

Limited liability companies (LLCs) generally possess no more than two of the following four
(desirable) characteristics: (1) limited liability, (2) centralized management, (3) unlimited life,
and (4) the ability to transfer ownership interest without prior consent of the other owners.
The two characteristics most likely to be ABSENT in LLCs are __________.
1. centralized management and the ability to transfer ownership interest without prior
consent of the other owners
2. unlimited life and the ability to transfer ownership interest without prior consent of
the other owners
Correct answer
3. limited liability and centralized management
4. centralized management and unlimited life
Management accounting
1. provides relevant information to managers.
2. provides relevant information to meet specific needs of persons inside the
organisation.
3. provides a framework to evaluate information in light of an organisation's goals.
4. all of the above

Shareholders are entitled to:

1. vote
2. share residually in the company's assets upon liquidation
3. share the profits
4. all of the above
The amount that relates to taxation in a statement of cash flow reflects which ONE of the
following?
1. The taxation relating to profits earned during the period
2. The taxation paid during the period
Correct answer
3. The taxation paid during the previous period
4. The taxation owed at the end of the period

The charging of depreciation expense over the life of an asset rather than the immediate full
expensing of its costs is an example of
1. Option 1
prudence
2. Option 2
matching
Correct answer
3. Option 3
reliability
4. Option 4
consistency

The convention of consistency refers to consistent use of accounting principles:

1. Option 1
Across accounting periods
Correct answer
2. Option 2
Throughout the accounting period
3. Option 3
Within industries
4. Option 4
None of the above is correct

The term that best describes financial statements whose basis of accounting recognises transactions and
other events when they occur is referred to as
1. Option 1
cash basis of accounting
2. Option 2
going concern basis of accounting
3. Option 3
accrual basis of accounting
Correct answer
 4. Option 4
invoice basis of accounting

The term ‘going concern’ is best described as

1. Option 1
the potential to contribute to the flow of cash and cash equivalents to the entity
2. Option 2
when current assets less current liabilities become negative
3. Option 3
the ability of the entity to continue in operation for the foreseeable future
Correct answer
4. Option 4
the income less expenses of an entity are negative

Which ONE of the following best describes the purpose of a statement of financial position?
1. Option 1
The value of the owner’s investment in the business.
2. Option 2
The assets of, and the claims against, the business.
Correct answer
3. Option 3
The current value of the business.
4. Option 4
The resources owned by the business and who contributed those resources.

Which ONE of the following cannot be a current liability?

1. Option 1
Trade receivables
Correct answer
2. Option 2
Trade payables
3. Option 3
A loan repayable in 6 months’ time
4. Option 4
Bank overdraft.
Which ONE of the following describes the depreciation method where each year’s expense over the life of
the asset is the same?
1. Option 1
Reducing balance method
2. Option 2
Straight line method
Correct answer
3. Option 3
Depreciable amount method
4. Option 4
Residual value method

Which ONE of the following features of ‘cash equivalents’ is incorrect?

1. Option 1
Highly liquid
2. Option 2
Held for long-term investment purposes
Correct answer
3. Option 3
Held for meeting short-term commitments
4. Option 4
Subject to insignificant risks of changes in value

Which ONE of the following is the second stage of an accounting information system?
1. Option 1
Information communication
2. Option 2
Information identification
3. Option 3
Information recording
Correct answer
4. Option 4
Information reporting

Which of the following is MOST likely to offer you the highest rate of return together with
the highest risk?
 1. Option 1
Cash in building society deposit account
2. Option 2
Ordinary shares
Correct answer
3. Option 3
Government bonds(gilt edge stock)
4. Option 4
Preference shares

Which of the following statements about a limited liability company is correct?

1. Option 1
A limited liability company is a separate person in law
Correct answer
2. Option 2
Directors of limited liability companies are always selected amongst the shareholders
3. Option 3
Directors of a limited liability company are personally liable if the company is sued
4. Option 4
Shareholders in a limited liability company are obliged to act as directors

……………… is the difference between sales revenue and cost of sales.

1. Option 1
Operating profit
2. Option 2
Gross profit
Correct answer
3. Option 3
Profit for the year
4. Option 4
Total profit
 Mock Test 2

A list of assets and claims for a business at the end of its second year’s trading are
presented here.

Plant and machinery £120,000

Inventories £50,000
Bank overdraft £30,000
Trade receivables £40,000
Trade payables £20,000
Long term loan £60,000
Buildings £150,000
Cash £10,000

Calculate the following accounting ratios of the firm respectively.

1. The Current Ratio (NB: Current Ratio = Current Assets / Current Liability)
2. The Acid-Test (Quick) Ratio (NB: The Acid-Test (Quick) Ratio = Quick Assets / Current
Liability).
1. Option 1
1:0.5 and 1:1
Correct answer
2. Option 2
1:0.5 and 1:0.2
3. Option 3
1:0.3 and 1.05
4. Option 4
1:0.2 and 1:1

Fill in the gap, a budget could be a ………… and a …………

1. Option 1
control tool and planning tool
Correct answer
2. Option 2
rearrangement tool and cutting tool
3. Option 3
a means of implementing action to the firm's divisions and a rearrangement tool.
 4. Option 4
meeting tool and rearrangement tool

When a firm is short of cash, yet it wishes to distribute something to shareholders, it should consider a
1. Option 1
stock dividend.
Correct answer
2. Option 2
cash dividend.
3. Option 3
liquidating dividend.
4. Option 4
none of the above.

All of the following are roles of a finance manager except

1. Option 1
performing an annual audit of the company’s financial statement
Correct answer
2. Option 2
setting out how the company should be financed
3. Option 3
being responsible for the company’s financial planning process
4. Option 4
being the company’s financial controllers

Linda runs a general store and has the following income statement balances in her books on 31 December
2018:
opening inventory: £200,000, wages: £450,000, sales: £2, 800,000, purchases: £1,300,000, heat and light:
£150,000, closing inventory: £220,300.
What is Linda’s gross profit for the year ended 31 December 2018? (NB: Gross profit = Sales – Cost of
Sales).
1. Option 1
£1,520,300
Correct answer
2. Option 2
£1,500,000
3. Option 3
£1,270,700
4. Option 4
£1,300,000
Fill in the gap; examples of current liabilities and non-current assets are ………. and …………
respectively.
1. Option 1
trade payables and buildings
 Correct answer
2. Option 2
trade receivables and inventories
3. Option 3
a loan repayable in 15 months’ time and trade receivables
4. Option 4
trade receivables and cash

Which of the following is the correct way to calculate the cash conversion cycle?
1. Option 1
Receivables days – payables days + inventory days
Correct answer
2. Option 2
Receivables days + payables days – inventory days
3. Option 3
Inventory days + receivables days + payables days
4. Option 4
Inventory days – receivables days + payables days

The comparative financial statements of Silver Plc for 2017 and 2018 include the following select data:

Looking at the trade receivables settlement period and the inventories turnover period respectively,
what comments can you make about Silver Plc in 2018 when compared with 2017?

Statement of financial position

2017 £ 2018 £

Current assets:
Inventories 35,500 33,000
Trade receivables 28,000 26,000
Bank balances 13,000 16,000
Total current assets 76,500 75,000
Trade payables 26,000 23,000
Income statement:
Revenue 586,000 515,000
Cost of sales 461,000 370,000
NB: Trade receivables settlement period = (Trade receivables/Revenue) x 365 days
NB: Inventories turnover period = (inventories/Cost of Sales) x 365 days

1. Option 1
 Worse for both the trade receivables settlement period and the inventories turnover period.
Correct answer
2. Option 2
Better for the trade receivables settlement period and worse for the inventories turnover period.
3. Option 3
Worse for the trade receivables settlement period and better for the inventories turnover period.
4. Option 4
Better for both trade receivables settlement period and the inventories turnover period.

ARR is
1. Option 1
the accounting rate of return and represents the average profit from an investment, as a % of the
average investment made.
Correct answer
2. Option 2
the accounting rate of returns that represent the rate of cash flowing into the business per year.
3. Option 3
the accounting rate of return that represents net cash flow at the end of the month.
4. Option 4
the accounting rate of return that represents the discount for a project which would produce a zero
net present value.

Fatima plc is listed on the London Stock Exchange. To which ONE of the following are the directors of
this company primarily accountable?
1. Option 1
The company's shareholders
Correct answer
2. Option 2
The London Stock Exchange
3. Option 3
The UK Government
4. Option 4
The company's auditors

During the financial year-end of 31 December 2017, a business paid a trade subscription of £3,000 for the
six months ended 31 March 2018.
If the trade subscription was £500 per month, what will be the figure shown in the income statement for
the year to 31 December 2017?
1. Option 1
£1,500
Correct answer
2. Option 2
 £2,000
3. Option 3
£1,000
4. Option 4
£3,000

Wagodstus Limited has the following income statement figures for the financial year ended 31 May 2017:
Revenue: £25,000, Cost of sales: £15,000, Distribution and selling costs: £3,000, Administration expenses:
£2,000.
What is Wagodstus Limited’s operating profit for the year ended 31 May 2017?
1. Option 1
£5,000
Correct answer
2. Option 2
£7,000
3. Option 3
£6,000
4. Option 4
£9,000

A company is considering investing in a machine with a capital cost of £200,000 with a useful life of 4
years.
Annual running costs are expected to amount to £25,000. It is estimated that the machine will be worthless
after the end of its useful life.
If the cash inflows associated with this machine are: £90,000 in the first year, £95,000 in the second year,
and £90,000 in each of the third and fourth years, what will be the payback periods for this machine?
Note: PP is time taken for the initial investment to be repaid out of project net cash inflows
1. Option 1
Three years
Correct answer
2. Option 2
Three year and five months
3. Option 3
Four years
4. Option 4
Four years and five months

Which component of the financial statement reports the profit or loss for the period?
1. Option 1
Statement of comprehensive income
Correct answer
2. Option 2
Statement of financial position
3. Option 3
 Statement of changes in equity
4. Option 4
Statement of cash flows
Which two out of the four investment appraisal methods take the time value of money into account?
1. Payback Period
2. Internal Rate of Return
3. Accounting Rate of Return
4. Net Present Value
1. Option 1
2 and 4
Correct answer
2. Option 2
1 and 3
3. Option 3
2 and 3
4. Option 4
1 and 4

FBS Ltd sells 3000 bags of jellybeans each year. It has been estimated that the cost of holding one bag of
jellybeans for a year is £3. The cost of placing an order for new inventories is £200. Calculate the EOQ for
bags of jellybeans. (Leave your answer in one decimal place). EOQ = √ 2DC/H.
1. Option 1
632.5 bags
Correct answer
2. Option 2
631.5 bags
3. Option 3
630.5 bags
4. Option 4
633.5 bags

Capital Investment Decision

Capital investment appraisal refers to:

1. Option 1
Making sure that we have enough money to buy assets
2. Option 2
Evaluating the costs and benefits of proposed investments in operating assets
Correct answer
3. Option 3
Making sure that assets pay for themselves as soon as possible
4. Option 4
Making sure that we have enough assets to operate
Which of the following will not be a relevant factor when using the payback method of
capital investment appraisal?
1. Option 1
The cost of the asset
2. Option 2
The cash flows generated by the asset up to the payback period
3. Option 3
The timing of the first cash inflow
4. Option 4
The total cash flows generated by the asset

A project would normally be undertaken if its net present value is:

1. Option 1
Zero
2. Option 2
Exactly the same as the NPV of existing projects
3. Option 3
Negative
4. Option 4
Positive