Certificate Level Examination June 2016 )(1½ hours · Enter 0000 for the centre number and 002 for...

Copyright © ICAEW 2016. All rights reserved. 221374

Certificate Level Examination

June 2016

(1½ hours)

BUSINESS AND FINANCE

This assessment is confidential.

You are expressly prohibited from disclosing, publishing, reproducing or transmitting this assessment, in whole or part, in any form or by any means, verbal or written, electronic or mechanical, for any purpose, without the prior express written permission of The Institute of Chartered Accountants in England and Wales (ICAEW).

There are 50 questions in this assessment worth equal marks. The pass mark is 55%.

You will have 90 minutes to complete the assessment which includes any review period.

IMPORTANT

Question papers contain confidential information and must NOT be removed from the examination hall.

You MUST submit this question paper and enter your student number in this box.

IF YOU FAIL TO DO SO YOUR SCRIPT WILL NOT BE MARKED.

DO NOT TURN OVER UNTIL YOU ARE INSTRUCTED TO BEGIN WORK

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Instructions for recording your answers

1. Record your responses only on the answer sheet provided. 2. Use an HB pencil throughout. 3. Enter 0000 for the centre number and 002 for the test number. 4. Enter your Candidate Number and Test Date into the appropriate spaces on your answer sheet. 5. a. For each of the 50 items in this paper there are four options; A, B, C, D. Choose the response that appears to be the best, and

indicate your choice on the answer sheet as a horizontal line in the box with the corresponding number and letter. For example, if you decide that the answer to item 1 is A, mark the answer sheet as shown below. For this assessment, you should disregard the boxes for options E and F on the answer sheet.

b. Choose one or more responses for each item, as appropriate to the item. Errors should be erased carefully and the new choice marked. Make NO other marks on the answer sheet.

6. ATTEMPT ALL ITEMS; you will score equally for each correct response. There will be no deductions for incorrect responses or omissions. 7. Do not fold or crease the answer sheet.

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1 AMX AB is a Swedish company. It has a dual board structure for its board of directors.

Which of the following does the company therefore operate in addition to the management board?

A A shadow board B A supervisory board C A non-executive board D A unitary board

2 Merton plc wants to begin production of a major new product which requires a new material, Apsase, in its manufacture. The company’s procurement manager Ross must decide the quantity of Apsase to order.

To do so he needs to balance

A the risk of a delay in production caused by insufficient Apsase against the risk of the quality of Apsase being poor B the current price of Apsase against the lead time for delivery C the risk of a delay in production against the cost of holding inventory of Apsase D the current price of Apsase against the risk of the price rising

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3 The most important source of finance for companies listed on the London Stock Exchange is

A bonus issues of shares to the public B rights issues of shares to existing shareholders C new issues of shares to the public D retained profits

4 The directors of Nuffield plc have recently completed an expensive project aimed at ensuring the company’s full compliance with the terms

of its debenture trust deed.

Concern for which major stakeholder is demonstrated by this project?

A Customers B Employees C Lenders D Suppliers

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5 A major telecoms company, TeleTalk plc, has drawn up a mission statement containing a number of statements.

Which of the following statements is appropriate in the company’s mission statement? A We will secure 10% market share in the countries in which we operate within three years B We intend to become the best telecoms company in the world C We will take over two identified target companies within 12 months D We will ensure profits are at twice the current level within two years

6 The observation that strict environmental regulations trigger the discovery and introduction of cleaner technologies and environmental improvements is called

A the efficient markets hypothesis B agency theory C the Porter hypothesis D constraints theory

7 In addition to an organisation’s competitors and its customers, the other two major influences on its pricing policy are

A its capacity and its core competences B its core competences and its corporate objectives C its costs and its corporate objectives D its costs and its capacity

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8 The price of Ralls has fallen by 2.4% in the last quarter, whilst in the same period the quantity demanded of Meens, where there has been no price change, has risen by 4.8%.

What is the cross elasticity of demand between Ralls and Meens?

A (0.5) B (2.0) C 0.5 D 2.0

9 Efficiency in Radley plc’s marketing function has declined recently. The marketing manager has now left and Seamus, the replacement manager, has been asked to pinpoint specific aims for the department, and to improve forecasting.

In terms of the management process, Seamus is being asked to

A organise B control C lead D plan

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10 A company’s mission states that it wishes to help ensure the needs of the present are met without compromising the ability of future generations to meet their own needs.

To do this the company must seek to operate

A sustainably B responsibly C ethically D profitably

11 Cross plc finances all its trading and investment activities by means of long-term finance.

The risk-return profile sought by the company’s directors is one of

A moderate risk and moderate return B no risk but an absence of any return C higher risk and higher return D lower risk and lower return

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12 Alana is the strategy development director of Santa plc. She believes that the core competences of the staff of Santa plc lie in design, marketing and supply chain management. She therefore analyses the company’s business environment constantly to find opportunities for Santa plc to exploit these sources of competitive advantage. What view of strategic planning is being adopted by Alana?

A A Theory Y view B A resource-based view C A production-oriented view D A positioning-based view

13 To calculate potential gross risk for a particular event, a business must take into account the probability of occurrence and A the level of volatility B the risk appetite C the level of exposure D the impact

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14 The external (statutory) auditor of a listed company must report an audit opinion on the company’s financial statements.

On which of the following must the auditor also report to the company’s shareholders? A The directors’ remuneration report B The directors’ effectiveness C The viability of the company’s strategic plan D The effectiveness of the company’s risk management and internal control

15 Which of the following is an advantage of operating a business as a private limited company?

A The owners of the company can agree on its constitution without reference to statutory rules B Information on the company’s constitution and finances does not have to be made public C The company can borrow money in its own name D The company can raise money from the public at large

16 Brase plc is a FTSE 350 company.

In relation to the UK Corporate Governance Code, which of the following statements is true for Brase plc? A It should be guided by the Code but can pick and choose which aspects to implement, without explanation B It must either comply with the Code or give good reasons for its non-compliance C It is unaffected by the Code because it is too small D It is bound by law to comply with all the Code’s requirements

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17 Amy is a line manager for a provider of insurance services. She has a team of direct operational staff reporting to her, and is responsible for conveying goals to her team, and ensuring they are met.

In terms of Mintzberg’s analysis of organisational structure, Amy is part of the organisation’s

A middle line B operating core C strategic apex D technostructure

18 Miriam runs an accountancy practice in a small town. A major client, Broad Ltd, has told Miriam that it expects her to confirm the value of the company’s assets to its lenders at a figure which is substantially above the figure she has legitimately calculated. Miriam’s failure to do so will lead to Broad Ltd publicly accusing Miriam of fraud and unprofessional behaviour.

This situation potentially gives rise to which of the following threats to Miriam’s compliance with ICAEW’s fundamental ethical principles? A The familiarity threat B The self-review threat C The intimidation threat D The advocacy threat

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19 Lena Ltd wishes to have much more detailed information about its customers so it can introduce differential pricing. A new marketing executive in Lena plc has offered to produce this information in his spare time, using an analysis tool he developed at university.

Which of the following characteristics of good information will this information lack?

A Authority B Relevance C Cost-effectiveness D Timeliness

20 ICAEW’s Investigation Committee has recently looked into a complaint brought by a client against Arndell LLP, a firm of chartered accountants. The Investigation Committee has found that there is a case to answer and considers the matter is so serious that it may lead to exclusion of the firm from membership.

In such circumstances, the Investigation Committee will

A offer a consent order B take no further action C offer an unpublicised caution D make a formal complaint to the Disciplinary Committee

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21 A database holding specialised data and rules about what to do in, or how to interpret, a given set of circumstances is

A an office automation system B a knowledge work system C an executive support system D an expert system

22 In support of whose interest, above all other interests, should an employed Chartered Accountant act?

A In the public interest B In his or her client’s interest C In his or her employer’s interest D In his or her own self-interest

23 Oriel plc has prepared some financial information for its bank, which is deciding whether to renew the company’s overdraft facility. Some

transactions have been excluded so that the bank will be more likely to decide in the company’s favour.

In terms of accounting principles, this financial information lacks

A consistency B prudence C neutrality D materiality

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24 Judy has purchased for £30,000 a bond with an annual interest rate of base rate + 2%, which matures in 10 years. Interest is only paid at the end of 10 years, but the bond’s issuer guarantees that Judy will receive at least £30,000 in 10 years' time.

Which of the following risks has Judy avoided?

A Capital risk B Interest risk C Shortfall risk D Inflation risk

25 Capital markets are supported by financial information that is reported with accuracy and clarity. The accounting profession seeks to ensure

this by requiring its members to avoid being associated with misleading information.

Which fundamental ethical principle is threatened if an accountant becomes associated with misleading information?

A Objectivity B Confidentiality C Independence D Integrity

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26 Shares are a source of capital for a company and a form of investment for investors.

In relation to shares, which of the following statements is correct?

A Shares are a form of equity capital for a company which carry higher risk for investors than debentures B Shares are a form of loan capital for a company which carry lower risk for investors than debentures C Shares are a form of equity capital for a company which carry lower risk for investors than debentures D Shares are a form of loan capital for a company which carry higher risk for investors than debentures

27 A company in Malawi is buying goods from a company in the UK. The companies have agreed to use a letter of credit for the transaction.

Who issues the letter of credit? A The UK company B The bank acting for the UK company C The company in Malawi D The bank acting for the company in Malawi

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28 An entity wishes to ensure that its financial statements reflect a particular transaction’s economic reality in full.

Which of the following accounting principles should the entity apply when preparing its financial statements?

A The materiality principle B The substance over form principle C The going concern principle D The accruals principle

29 In the country of Somerland, individuals choose to hold their wealth in the form of cash. They are only willing to accept a low level of risk in their investments.

The financial system in Somerland is

A a market-based system B a public policy system C a bank-based system D a stakeholder system

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30 Cynthia is an accountant involved in the audit of Wadham plc. She is currently considering the accounting treatment of one particular transaction. She has referred to the relevant financial reporting standards but is still uncertain as to how the transaction should be presented in the company’s financial statements.

To inform the professional judgement that Cynthia needs to make she should, therefore, consider

A resigning from the engagement team B accounting principles C ethical principles D her common sense

31 The directors of Peter plc wish to improve how economically the company uses its resources.

To do so they should measure

A the company’s performance in relation to its objectives B the company’s core competence in resource use C the company’s success in reducing its costs D the company’s critical success factors

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32 Ronald, a Chartered Accountant, has recently been the subject of a complaint by one of his clients. Conciliation has not resolved the matter.

Which of the following is the next step that will happen in ICAEW’s complaints and disciplinary procedure? A Disciplinary proceedings by the Disciplinary Committee B Investigation by the Investigation Committee C Arbitration D Referral to the Appeal Committee

33 Arnold works in the finance function of Hugh Ltd. His duties involve providing information to assist managers in their decision-making, performance measurement, planning and control activities.

It is clear that Arnold is employed by Hugh Ltd in its finance function’s

A financial transaction recording section B treasury management section C financial reporting section D management accounting section

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34 Nose plc’s directors make strategic decisions that meet their own objectives in priority to those of the company’s shareholders. At the company’s recent AGM, however, the shareholders expressed their thanks to the directors for the company’s recent profit record.

It would appear, therefore, that in relation to objectives, Nose plc’s directors are involved in

A satisficing B constraining the business C revenue maximisation D profit maximisation

35 Temple plc’s finance function provides monthly management accounting information to its factory so managers and supervisors can

understand and deal with variances for materials and labour.

In terms of financial information, these reports can be classified as

A operational information B tactical information C strategic information D planning information

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36 Under the UK Corporate Governance Code, which of the following has responsibility for a sound system of risk management and internal control in a company?

A The non-executive directors only B The executive directors only C The audit committee only D The board as a whole

37 In terms of its organisational structure, Worcester plc is a ‘flat’ business.

This characteristic gives which problem to the managers of the company?

A Less participation by team members in decision-making B Narrower spans of control C Less delegation D Slower communication between the strategic apex and the operating core

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38 Ruskin plc is a large company listed in the FTSE100. With reference to the requirements of the UK Corporate Governance Code, the company is considering the membership of its remuneration committee.

The number of independent non-executive directors on the committee must be at least

A two B three C four D five

39 Keble Ltd and Teddy Ltd have recently formed a new company, Lusk Ltd, to produce and sell a new product. Keble Ltd owns 60% of Lusk Ltd and Teddy Ltd owns 40%. Both companies will contribute equally to the management of Lusk Ltd.

This is an example of a

A group structure B joint venture C licensing agreement D strategic alliance

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40 In respect of a listed company’s internal audit function, which of the following statements is true?

A Internal audit is part of neither the company’s corporate governance nor its internal control system B Internal audit is part of the company’s internal control system but not its corporate governance C Internal audit is part of the company’s corporate governance but not its internal control system D Internal audit is part of both the company’s corporate governance and its internal control system

41 Exeter plc has struggled to prepare its financial statements for its most recent reporting period. It is in danger of missing the deadline for filing the financial statements with the Registrar.

Exeter plc is experiencing

A systems risk B legal risk C event risk D process risk

42 Changes in demand for a product are caused by a rise in household incomes.

For the product the result will be

A movements along its demand curve B a shift to the right in its demand curve C a shift in its supply curve D a shift to the left in its demand curve

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43 Margaret is involved in a detailed strategic analysis for her company. Currently, she is working on the internal analysis.

Which of the following strategic management techniques will Margaret most likely use in the internal analysis?

A The value chain B PESTEL C Porter’s five forces D The industry life cycle

44 The government issues regulations to force companies to pay for the social costs of their activities.

Which type of market failure does this business regulation seek to address?

A Externalities B Public goods C Economies of scale D Asymmetric information

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45 Janet is a senior manager with Horse plc, responsible for ensuring a complex task is completed. Her leadership style means that she treats people like machines to get the task done. She believes this is the best way to ensure completion, so she gives no attention at all to keeping people happy.

In terms of the Blake & Mouton Managerial Grid, Janet would be classified as

A country club B impoverished C authoritarian D participative

46 Which of the following represents a contractionary fiscal stance by the government?

A Decreased borrowing and increased spending B Increased borrowing and spending C Increased taxation but no increase in spending D Increased taxation and spending

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47 Hertford plc is an established manufacturer of smartphones. The company’s marketing department is currently seeking to generate sales of its new range of kitchen appliances. It has decided to undertake extensive consumer advertising of the kitchen appliances.

The promotion technique being pursued by Hertford plc for the new product range can, therefore, be characterised as a A public relations technique B personal selling technique C push technique D pull technique

48 Investigating proposed mergers is the responsibility of

A the Financial Conduct Authority B the Information Commissioner C the Competition and Markets Authority D the Prudential Regulation Authority

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49 The following are possible characteristics of organisations.

(1) Making a profit (2) Controlled performance (3) Pursuing a social arrangement (4) Seeking complete integration with the environment (5) Achievement of individual goals Which characteristics are common for ALL organisations? A (1) and (4) only B (2) and (3) only C (3) and (5) only D (1), (2), (4) and (5) only

50 Marcus has a maximum limit on his overdraft of £1,000. To date he has never used more than £500 of this facility. Because he and his wife have just started a family, his expenditure is likely to increase by 30% over the next six months.

What is the greatest source of risk in this situation for Marcus? A That his overdraft requirement will be less than £1,000 B That the bank will close his account because he relies on overdraft finance C That his bank will demand immediate repayment of all amounts outstanding D That his overdraft requirement will exceed £1,000

ITEM 50 COMPLETES THIS TEST

Certificate Level Examination June 2016 )(1½ hours · Enter 0000 for the centre number and 002 for...

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