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Accounting > MCQ Questions > Flashcards

MCQ Questions Flashcards

1
Q

Which of the following statements is false in relation to partial budgets?

  • A partial budget examines the revenue and costs affected by a marginal change in
    the farm business
  • A partial budget shows the expected change in profit
  • A partial budget includes all expected revenues and expenses for all farm enterprises
  • None of these answers are false
A
  • A partial budget includes all expected revenues and expenses for all farm enterprises
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2
Q

Which one of the statements below could be a general definition of opportunity cost?

  • The cost of giving up a less profitable enterprise
  • The cost of using cheaper inputs
  • The opportunity to change enterprises to make more money

-The return from the best alternative use of that capital

A

-The return from the best alternative use of that capital

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3
Q

The depreciation method applied to a fixed asset (i.e. straight line or reducing balance
method), is generally determined by:

  • The type of asset that it is
  • Other
  • The monetary value of the asset
  • The expected useful life of the asset
A
  • The type of asset that it is
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4
Q

When preparing an Enterprise gross margin account, which of the following would
not be regarded as a variable cost?

  • Feed costs
  • Sprays
  • Farm Insurance, machinery running costs, electric, water, farm maintenance, labour,
    interest, admin and professional fees
  • AI
  • Verterinary
A
  • Farm Insurance, machinery running costs, electric, water, farm maintenance, labour,
    interest, admin and professional fees
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5
Q

Which of the following decisions would not be regarded as an operational farm
decision:

  • Concentrate feeding levels
  • Purchase additional land
  • None of these
  • Fertiliser application rates
A
  • Purchase additional land
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6
Q

For stock valuation purposes in farm accounts, pigs are typically valued at which of
the follow
Rates:

  • 75% of market value
  • 50% of market value
  • 60% of market value
  • 100% of market value
A
  • 75% of market value
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7
Q

A dishonoured cheque can cause the farmer’s bank account balance to be different to
the bank statement’s balance

  • True
  • False
A
  • True
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8
Q

Which of the following would not be regarded as a way to increase farm profit.

A
  • Substitute lower gross margin enterprises for higher gross margin enterprises
  • Decrease fixed costs
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9
Q

What is a “contra” account? (Briefly explain)

A
  • A contra account is an account that is used when a farmer owes money to a supplier
    and the supplier also owes money to the farmer for goods provided by the farmer -
    e.g. farmer sells milk to the Co-op but also buys feed from the co-op
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10
Q

A direct debit of €2,300 has been recorded in the farmer’s income and expenditure
account in respect of farm vehicle repairs (expense).
At the start of the year there was farm vehicle repairs (expense) due of €300.
At the end of the year there was farm vehicle repairs (expense) due of €1.200.
The value of the farm vehicle repairs expense, to be included in the Profit & Loss
Account, for period is:
- 1,400
- 3,200
- 3,800
- 800

A
  • 3,200
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11
Q

Which of the following is false:

  • A whole farm budget includes all expected revenues and expenses for all of the
    farms revenues
  • A whole farm budget is used where a decision will involve minor and or major
    changes to the restructure and organisation
  • Whole farm budgeting is typically about identifying new ideas for the farm
  • The total expected farm profit is estimated by the whole farm budget
A
  • A whole farm budget includes all expected revenues and expenses for all of the
    farms revenues
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12
Q

When a debtor can no longer pay their debt the only transaction/adjustment required
in the accounts is to record the debt as an expense in the profit and loss account

  • True
  • False
A
  • False
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13
Q

A lodgement of €550 is correctly recorded in the bank statement
This same lodgement is recorded as €550 in the farmers cashbook account in their
books and records
How would you resolve the issue when preparing a bank reconciliation?

  • In the farmers cash book account record £45 on the credit side (ride hand side)
  • In the bank account statement record £45 in the add deposits section
  • In the farmers cash book account record £45 on the debit side (left hand side)
A
  • In the farmers cash book account record £45 on the credit side (ride hand side)
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14
Q

Identify one limitation of a benchmarking approach when analysing farm
performance:

A
  • Difficulty of obtaining exact and fair comparisons between farms due to differences in
    Infrastructure mechanisation facilities EG. Land type quality fragmentation tenure,
    Farming System, Level of indebtedness
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15
Q

List two ways a business would be selected for a revenue audit

A
  • Suspicion raised from tax returns
  • A business can be reported to revenue- “tip off” situation
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16
Q

Using the following financial data, calculate the correct value for the Enterprise Net
Margin for the Lamb Rearing Enterprise:
Opening stock valuation €20,000
Closing stock valuation €28,000
Lambs sold to factory €41,000
Lamb slaughtered for home consumption €210
Lambs transferred to breeding ewe enterprise €2,500
Total variable costs €25,750
Total fixed costs €12,450

Sales 41000
+ Transferred out 2500
+ Home consumption 210
+ Closing 28000
- Opening (20000)
=
● 25,960
● 23,460
● 13,510
● (5,200)

A

Gross margin 51710
Gross margin - VC - FC = Net Margin
35710 - 25750 - 12450 = 13510

● 13,510

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17
Q

A loan of 3 years duration would be included in the balance sheet as a:

● Current Asset
● Fixed Asset
● Current Liability
● Long Term Liability

A

● Long Term Liability

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18
Q

The closing cash balance in a cash budget is calculated by:

● Cash inflows minus cash outflows

● Cash inflows plus cash outflows

● Cash inflows minus cash outflows plus opening cash balance

● Cash inflows plus cash outflows plus opening cash balance

● Cash inflows minus cash outflows minus opening cash balance

● Cash inflows plus cash outflows minus opening cash balance

A

● Cash inflows minus cash outflows plus opening cash balance

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19
Q

In your own words, identify two weakness/limitation of ratio analysis when analysing
a farm accounts

A
  • Ratios do not allow for seasonal fluctuations
  • Incomplete as they fail to consider any non cash benefits that have accrued during
    the accounting year.
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20
Q

When preparing an Enterprise Gross Margin Account, which of the following would
not be regarded as a fixed cost:

● Fertiliser costs
● Farm administration costs
● Farm insurance costs
● Machinery running costs

A

● Fertiliser costs

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21
Q

What type(s) of data should be “normalised” for inclusion in a budget?

A

** Technical and financial data used in budgets should be normalised projections **

It is important to “normalise” price and yield data in profitability budgets

22
Q

Prepaid income at the year end is recorded in the Balance Sheet as a:

● Long Term Liability
● Current Asset
● Fixed Asset
● Current Liability

A

● Current Liability

23
Q

List 3 advantages of preparing Enterprise Gross Margin Accounts for a farm:

A

● Enables the performance of individual farm enterprises to be assessed
-Detailed management information

-Identifies strengths and weaknesses

● Can be used to benchmark performance

-Comparative analysis with similar farms

● Encourages high quality record keeping

24
Q

Definition of opportunity cost
Opportunity Cost -

A

the return from the best alternative use of that capital

25
Q

What scenarios would lead you to make a whole farm budget?

A

● WFB used where a decision will involve a major change in farm organisation and
structure (affecting most or all the farm enterprises and resources)

● WFB is often about identifying new ideas for the farm (business strategy)

● estimates total expected farm profit

● Usually associated with significant farm restructuring/adjustment

● Typically used when major re-planning of the farm business required:

○ Major expansion/development
○ Purchasing/inheriting a new farm
○ Debt crisis
○ Injury/illness

26
Q

Receipts to the value of €1,800 have been recorded in the farmers income and
expenditure account in respect of the rental income
- At the start of the year there was prepaid rent income of £250
- At the end of the year there was rent income prepaid of £800
The value for rental income, to be included in the Profit and Loss account for the
period is:

  • 2850
  • 750
  • 1800
  • 1250
  • 2350
A
  • 1250
27
Q

Reasons why bank Recs are needed?
(2)

A
  1. Check the accuracy of the bank account by agreeing balance to bank
    statement
  2. Identify any bank account errors or omissions
28
Q

Standing order:

A

a firm can instruct a bank to pay regular amounts of money at stated
dates to persons or other firms

29
Q

Direct debit:

A

a firm can allow creditors permission to obtain funds directly from the
firm’s bank accounts - which allows the amount collected to vary.

30
Q

BAC (Banks Automated Clearing System):

A

a method of making payments
electronically with funds taking up to three days to clear. Entered on day 1,
processed on day 2, and cleared on day 3.

31
Q

What’s the difference between cash accounting systems and accrual
accounting systems?

A

Cash accounting systems:

  • Record payments and receipts when cash is paid or received.
  • Measure business cash flow
  • Can be erratic, inconsistent measure of operational performance form year to
    year

Accruals accounting systems:

  • Revenue and expenses matched to period in which they are incurred,
    regardless of when cash changes hands
  • Adjustments are made for
  • Creditors and debtors
  • Payments and accruals
  • Drawings
  • Depreciation of fixed assets are included in accrual accounting systems
32
Q

What is a debtor?

A

Accounts owed to the business at the end of the financial year. E.g payments for milk
supplied in Dec. will not be received until Jan.

33
Q

What is a creditor?

A

Accounts owed by the business at the end of the financial year. E.g dairy feed may
have been purchased in Dec. but merchants did not pay until Feb.

34
Q

Name and explain the two main methods of depreciation:

A
  1. Straight line: charges an equal amount of depreciation to each period.
    Typically used for buildings and land, assets with a residual value of 0 and an
    estimated life of 10-20yrs.
  2. Reducing Balance: depreciation rate is expressed at a % and applied to the
    reducing balance of an asset. It is the written down value after deduction of
    the cumulative depreciation in previous years. It results in a much higher
    level of depreciation in early years of asset life and lower in later years.
    Typically used for vehicles and machinery.
35
Q

Gross Margin Accounts - Variable Costs:

  • Vary roughly in direct proportion changes in the size/output/activity of
    enterprise
  • Feed costs, fertiliser, veterinary & AI, sprays
  • Can be readily allocated to specific enterprises based on use
  • Cease to be incurred if stopped the enterprise
A
  • Feed costs, fertiliser, veterinary & AI, sprays
  • Can be readily allocated to specific enterprises based on use
36
Q

Q: A farmer has land that is suitable only for beef cattle or sheep production.
The farmer’s beef enterprise produces a net margin of €250 per hectare, while
her sheep enterprise produces a net margin of €300 per hectare. A further
alternative is to rent out the land to a neighbouring farmer for €350 per
hectare. Assuming that the farmer will reduce his/her beef enterprise by 10
hectares, what is the opportunity cost of increasing sheep by 10 hectares?

i) €2500
ii) €3500
iii) €500
iv) €1000

A

350-250=100X10

37
Q

Q: Which of the following is not a characteristic of a farm variable cost?

i) They vary in proportion with the size of enterprise

ii) They are readily allocated to specific farm enterprise

iii) They would cease to be incurred if the enterprise ended

iv) They are sunk costs

A

iv) They are sunk costs

38
Q

Q: The balance sheet equation is:

i) Assets= Expenses + revenue
ii) Assets= Cash + Net Worth
iii) Assets= Net Worth + Liabilities
iv) Assets= Expenses + Capital

A

iii) Assets= Net Worth + Liabilities

39
Q

Q: The Current Ratio is defined as….

i) Liquid Current Assets divided by current liabilities
ii) Farm debt divided by total assets
iii) Current assets divided by Current liabilities
iv) Net worth divided by total assets

A

iii) Current assets divided by Current liabilities

40
Q

Barry’s Wheat enterprise for year ending 31 December 2011 (TABLE 1)
Opening Valuation €7,000
Closing Valuation €8,000
Grain Sold €5,000
Grain Transferred out to dairy enterprise €10,000
Straw transferred out to beef enterprise €4,000
Fertiliser €6,000
Contractor Charges-Cultivation €2,000
Seed, Sprays. Sundry €3,000

Q: Using the information on table 1, what is the value of the Enterprise Output
for Barry’s
Wheat enterprise?

i) €20,000
ii) €19,000
iii) €16,000
iv) €9,000

A

(OUTPUT-CLOSING-OPENING)

i) €20,000

41
Q

Q: Using the information in Table 1, what is the value of the Enterprise Gross Margin
for Barry’s Wheat enterprise?

i) €8,000
ii) €9,000
iii) €5,000
iv) €11,000

A

ii) €9,000

42
Q

The Acid Test Ratio or a farm business is a measure of:

i) Profitability
ii) Liquidity
iii) Efficiency
iv) Solvency

A

ii) Liquidity

43
Q

Q: Which of the following is a correct characteristic describing the use of a
partial budget?

i) A partial budget measures every return and cost charge, whether increased,
decreased, or stays the same

ii) A partial budget analyses how a change in a certain farm enterprise affects the
farm operation’s profits

iii) A partial budget demonstrates the effect that various prices, yields, and costs
have on the farm’s equity

iv) A partial budget determines the loan repayment capacity of a farm business for
the next year

A

ii) A partial budget analyses how a change in a certain farm enterprise affects the
farm operation’s profits

44
Q

Q: Which of the following describes the advantages of a Cash Flow Budget in
farm financial management?

i) Determines when the farm business needs to borrow money during the year

ii) Shows how the cash income of the farm is being spent for what use during the
year

iii) Shows when the farm business can increase its cash spending (purchases)
without additional borrowing

iv) All of the above are appropriate advantages for using a Cash Flow Budget

A

iv) All of the above are appropriate advantages for using a Cash Flow Budget

45
Q

Q: The Cost Benefit principle requires that

i) The extra benefit from taking an action should exceed the extra cost incurred

ii) The farmer ensures that total farm revenue exceeds total farm costs

iii) The farmer benefits from shopping around to lower the cost of inputs

iv) The price the farmer receives should exceed the production costs

A

i) The extra benefit from taking an action should exceed the extra cost incurred

46
Q

Q: Opportunity costs arise in farm production because

i) Farmers have few feasible alternatives

ii) Input prices are high

iii) Resources must be shifted away from producing one good in order to produce
another

iv) Resources are unlimited

A

Resources must be shifted away from producing one good in order to produce
another

47
Q

Q: A farmer invested in a new building costing €20,000 in 2009. It is to be fully
depreciated over 10 years using the Straight Line method. What is the Written
Down Value (WDV) at the year-end 2011?

i) €2,000
ii) €14,000
iii) €6,000
iv) Some other figure

A

15% each year, 15% of 20,000 = 3,000.
3,000 X 2= 6,000. 29,000-
6,000=14,000.

48
Q

1) Which of the following is a stock resource

a) Farm Buildings
b) Machinery
c) Concentrate Feed
d) Land

A

c) Concentrate Feed

49
Q

14) Your are given the following information:

a) Cash received for milking €50,000
b) Opening debtors 31 March 2011€5000
c) Closing debtors 31 March 2012 €8000
i) What is the value for milk revenue to be recorded in the farmers profit and
loss account for the year ending 31 march 2012?

(1) 50,000
(2) 53,000
(3) 47,000
(4) 58,000xc

A

(2) 53,000

50
Q

15) A farmer invested ina new building costing €20,000 in 2009. It is to be fully
depreciated over 10 years using the straight line method. What is the written
down value at the yea end 2011?

a) €2,000
b) €14,000
c) €6,000
d) Some other figure

A

b) €14,000

51
Q

1) The cost benefit principle requires that:

a) The extra benefit from taking an action exceed the extra cost incurred
b) The farmer ensures that total farm revenue exceeds total farm costs
c) The farmer benefits from shopping around to lower the cost of inputs
d) The price the farmer receives should exceed the production costs

A

Accounting (12 decks)

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