exam 2020 Flashcards
What is the primary difference between management accounting and financial accounting?
Management accounting is for internal decision-making, often using estimates and forecasts.
Financial accounting serves external purposes, relying on accurate, verifiable data.
Does the reducing-balance method of depreciation result in higher charges compared to the straight-line method?
True: Higher charges occur in early years with reducing-balance depreciation.
False: Depreciation is not for determining market value but for allocating asset cost over its useful life.
What does the matching convention ensure?
It aligns expenses with the revenues they generate, providing a clearer picture of profitability.
What is the relevant cost of material used for another purpose?
The opportunity cost, which is the replacement cost (£310 per tonne in this case).
Which criteria make a cost relevant to a decision?
Relates to business objectives.
Differentiates between possible options (differential cost).
Does not need to involve cash or objective evidence.
What is the formula for the break-even point (units)?
BEP= Total Fixed Costs (tf)/ sales price per uni(s)- variable cost per unit (v)
S−V is the contribution per unit.
What is the focus of the payback period method?
It measures how long it takes to recover the initial investment, assessing risk but not profitability.
What does the price/earnings (P/E) ratio indicate?
It reflects how much investors are willing to pay for £1 of earnings, showing market confidence in future growth.
