Mock In-Class Test

Question 1

1) Accounting is concerned with collecting _____ and _____ financial information
a) analysing, evaluating
b) evaluating, recording
c) analysing, communicating
D) recording, preparing

Answer 1

c) analysing, communicating

Question 2

2) In order for a piece of financial information to have the quality of faithful representation, it should possess various characteristics. Which one of the following is one of these characteristics?
a) Materiality
b) Timeliness
c)) Neutrality
d) Verifiability

Answer 2

C) Neutrality

Question 3

3) A key difference between management accounting and financial accounting reports is that management accounting reports tend to
a) be of general purpose.
b) be forward looking.
c) have longer reporting intervals.
d) rely more on objective, verifiable evidence.

Answer 3

B) be forward looking

Question 4

Which area of study is most closely associated with acquiring and deploying the short-term and long-term finance required by a business?
a) Financial accounting
b) Management accounting
c) Strategic management
d) Financial management

Answer 4

d) Financial management

Question 5

At the year end, the total assets of a business were £200,000 and total liabilities were £125,000. During the year, the owner introduced a further £20,000 in equity. The business began the year with total assets of £160,000 and total liabilities of £115,000. What is the profit (loss) for the year?
a) 10,000 (profit)
B) 30,000 (profit)
C) 10,000 (loss)
d) £30,000 (loss)

Answer 5

a) 10,000 (profit)

Question 6

Which one of the following statements best describes the purpose of the statement of financial position (balance sheet)?
a) The assets of, and the claims against, the business.
b) The value of the owner’s investment in the business.
c) The current value of the business.
d The resources owned by the business and who contributed those resources.

Answer 6

a) The assets of, and the claims against, the business.

Question 7

The historical cost convention in accounting is often defended on the grounds that it provides users with
more _____ information than a system of accounting based on current values.
a) understandable
b) reliable
c) relevant
d) comparable

Answer 7

b) reliable

Question 8

A business begins the year with opening inventory of £4,500. During the year it purchases goods for £65,500 and sells goods for £80,000. The business makes a uniform gross profit of 60% on sales. What is the closing inventory figure for the year?
a) £32,000
b) £22,000
c) £38,000
d) £48,000

Answer 8

c) £38,000

Question 9

15) BM It began trading on 1 January and, after only 6 months’ trading, a fire in one of its two warehouses destroyed all the inventory being held there. The owner of the business reported that sales revenue and purchases to the date of the fire were £250,000 and £200,000 respectively. Furthermore, there were still £12,000 of inventory held in the second warehouse that were not affected by the fire. The business makes a constant gross profit margin of 30% on its sales.
What is the value of inventory destroyed by the fire?
a) £50,000
b) £60,000
c) £13,000
d) £12,000

Answer 9

c) £13,000

Question 10

The statement of financial position of Rosie It includes the following entries: inventory - £25,000, trade receivables - £12,000, cash - £11,000 and current liabilities of £25,000 (made up of trade payables - £16,000, short-term borrowing - £800 and current tax payable - £8,200). Calculate the current ratio (round to one decimal place).
A) 0.9
B)1
c) 0.4
d) 1.9

Answer 10

d) 1.9

Question 11

19) “Financing activities” in a statement of cash flows refers to
a) changes in cash and cash equivalents.
b) changes in long-term and short-term funding.
C) changes in long-term funding.
d) changes in short-term funding.

Answer 11

C) changes in long-term funding.

Question 12

Calculate the Return on Capital Employed (ROCE) (round to one decimal place).
a) 20%
b) 11%
c)) 16%
D) 8.8%

Answer 12

C) 16%

Question 13

23) Gross profit is the difference between sales and the cost of goods sold.
A) True
B) False

Answer 13

A) True

Question 14

24) Which one of the following statements about the current ratio is false?
a It is determined by dividing current assets by current liabilities.
b) A firm with a lower current ratio is better off than one with a higher current ratio
c) The higher the current ratio, the more liquid the business is considered to be.
d) It is larger than the quick ratio

Answer 14

B