FINANCIAL MANAGEMENT ACCOUNTING SKILLS AND … · 2017. 5. 5. · financial management accounting...

Copyright © ICAEW. All rights reserved 2016. 226872

Certificate Level Examination

December 2016

(3 hours)

FINANCIAL MANAGEMENT ACCOUNTING SKILLS AND COMPETENCE

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 80 questions in this assessment worth equal marks. The pass mark is 55%.

You will have 180 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 003 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 80 items in this paper there are up to six options; A, B, C, D, E, F. 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. At 30 November 20X3 Skelton plc had a payables control account with a balance of £467,278. This balance was £566 more than the total on its list of payables at the same date. Correction of which one of the following errors would reconcile the two balances?

A An invoice from Holland plc for £283 had been recorded in the purchases day book as a credit note B A cheque paid to Heath plc for £283 had been recorded on the credit side of Heath plc’s account. Correct entries were made in the

nominal ledger C Skelton plc recorded a credit note for £566 for returned goods in the purchases day book. This was credited to the supplier’s account

in the payables ledger D The total column of the purchases day book had been overcast by £566

2. The totals of the analysis columns for September from Nicola’s business cash receipts book are as follows:

Receivables Cash sales Discounts £85,420 £16,874 £1,060 The posting of the cash receipts book to the nominal ledger would be A Debit Bank £103,354; Credit Receivables £85,420; Credit Sales £16,874; Credit Discounts received £1,060 B Debit Bank £103,354; Credit Receivables £85,420; Credit Sales £16,874; Credit Discounts allowed £1,060 C Debit Bank £102,294: Debit Discounts received £1,060: Credit Receivables £86,480; Credit Sales £16,874 D Debit Bank £102,294; Debit Discounts allowed £1,060; Credit Receivables £86,480; Credit Sales £16,874

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3. To whom does the ICAEW Code of Ethics apply?

(1) ICAEW members (2) Employees of member firms of ICAEW (3) ICAEW students (4) All professional accountants A (1) and (2) B (1), (2) and (3) C (1), (3) and (4) D All of them

4. Townsend plc’s trial balance is balanced by the inclusion of a suspense account with a £900 debit balance. The following errors are identified:

(1) An electricity bill for £4,200 had been recorded in the expense account as £2,400 (2) Interest received of £700 had been entered in the bank account only After correcting these errors, what is the balance remaining on the suspense account? A £3,400 debit B £2,000 debit C £200 credit D £1,600 credit

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5. Which of the following are all listed as debit balances on a trial balance?

A Discounts received; Carriage outwards; Sales B Discounts allowed; Carriage outwards; Drawings C Discounts allowed; Carriage inwards; Sales D Discounts received; Carriage inwards; Drawings

6. The following balances are included in Ling plc’s statement of financial position at 31 March 20X2 and 20X1:

20X2 20X1 £ £ Current assets Inventories 84,487 96,123 Trade receivables 134,005 128,910 Current liabilities Trade payables 76,154 71,506

Ling plc has neither a bank overdraft nor long-term borrowings, and its profit before tax for the year ended 31 March 20X2 was £145,952. Depreciation expense for this year was £67,125 and the company sold a non-current asset which gave rise to a profit on sale of £4,680. In the company’s statement of cash flows for the year ended 31 March 20X2 what figure would be shown as cash generated from operations?

A £206,504 B £210,290 C £219,586 D £228,946

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7. The VAT account in Renton Ltd’s nominal ledger for the quarter ended 31 March 20X8 shows output tax exceeding input tax by £30,505. A subsequent review of the accounting records has shown the following:

(1) The VAT of £3,560 included on a purchase invoice has not been posted to the VAT account (2) Output VAT of £4,278 on a batch of invoices was posted to the debit side of the VAT account

The correct amount payable to HMRC for the quarter ended 31 March 20X8 is A £42,621 B £35,501 C £31,223 D £29,787

8. Max started a business on 1 April 20X2 with capital of £50,000. During his first trading year to 31 March 20X3 he made a loss of £2,570. During this year he withdrew £800 each month for living expenses and also took goods out of the business for personal use. These had a total sales value of £1,800 and had been marked up 50% on cost.

What were Max’s business net assets at 31 March 20X3?

A £41,770 B £41,170 C £36,630 D £36,030

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9. The opening and closing balances on Grainger plc’s payables control account for April are £65,402 and £71,369 respectively. Payments and discounts posted from the cash book are £384,612 and £5,798 respectively. Returns inwards for the month are £16,030.

Total purchases posted from the purchases day book for April are A £380,347 B £400,473 C £400,811 D £412,407

10. At 1 July 20X4 Farah plc had allowances for irrecoverable debts relating to two customers: Unsworth plc for £10,280 and Danson Ltd for

£5,650. During the year ended 30 June 20X5 the following occurred:

(1) On 30 November 20X4 Unsworth plc went into liquidation so Farah plc wrote off the debt in full. (2) On 1 February 20X5 £2,500 was received from Hinch plc, a customer whose debt had been written off in the year ended 30 June

20X4.

At 30 June 20X5 Danson Ltd still owed £4,000, and Farah plc wishes to maintain the allowance for this amount. What is the charge/credit for irrecoverable debts included in Farah plc’s statement of profit of loss for the year ended 30 June 20X5?

A £850 charge B £850 credit C £4,150 charge D £4,150 credit

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11. Lewis plc’s trial balance does not balance at 31 October 20X7, credit balances exceeding debit balances by £1,532. Which of the following errors would cause this imbalance?

A The bank overdraft of £766 has been listed as an asset B The balance on the discounts received account of £1,532 has been missed off the list of balances C The total of a purchase invoice for £1,532 was entered in the purchases day book, but not analysed in the analysis columns D Cash sales of £766 were posted as sales returns

12. Which of the following statements about a statement of cash flows is/are correct?

(1) A decrease in prepayments will be added back in the reconciliation of profit before tax to cash generated from operations (2) Interest received will be included as a financing activity (3) The loss on sale of an asset will appear as an outflow under investing activities (4) The redemption of debentures will appear as outflow under financing activities

A (1), (2) and (3) B (1) and (4) C (2) and (3) D (3) and (4)

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13. A customer of Peaty Ltd has a credit balance on their receivables ledger account. Which of the following would explain the credit balance?

A Peaty Ltd posted a total from the sales day book to the receivables account twice by mistake B The customer failed to take account of a credit note when paying an invoice C Peaty Ltd omitted to post discounts allowed to the customer to the customer’s account D The customer also has a payables ledger account. Peaty Ltd posted a contra to the wrong side of the receivables ledger account

14. Whitlock plc’s trial balance has been balanced by the inclusion of a suspense account. The following errors have subsequently been found, correction of which clear the suspense account:

(1) The prepayments account with a balance of £3,478 has been omitted from the trial balance (2) Returns to suppliers of £1,653 had been recorded in the returns out account but not in the payables control account. What was the balance on the suspense account prior to the correction of these items? A £1,825 debit B £1,825 credit C £5,131 debit D £5,131 credit

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15. During the year ended 31 March 20X9, Jessica has taken goods for her own use from her business but failed to record this in her financial statements. The goods’ sales price was £3,650, and Jessica earns a gross profit of 40% on this line of goods.

Once this transaction is recorded, Jessica’s net profit for the year ended 31 March 20X9 will

A Increase by £2,190 B Increase by £3,650 C Decrease by £2,190 D Decrease by £3,650

16. Ennis plc maintains its petty cash records using an imprest system. The total petty cash float is topped up monthly to £200. During the month of January the following amounts were taken out of petty cash:

£ Tea and coffee 16 Light bulbs 20 Office supplies 37

In error, the purchase of office supplies was recorded as £73, and as a result, a cheque for £109 was written to top up the petty cash float. The error made will result in which of the following? A An imbalance in the trial balance of £36, and the petty cash balance being £36 more than it should be B An imbalance in the trial balance of £36, and the petty cash balance being £36 less than it should be C An overstatement of expenses of £36 and the petty cash balance being £36 less than it should be D An overstatement of expenses of £36 and the petty cash balance being £36 more than it should be

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17. Glover plc has prepared its draft statement of profit or loss for the year ended 31 December 20X4 that shows a net profit of £149,025. Subsequently the following matters have been found:

(1) £4,608 paid for the purchase of a new printer on 1 May 20X4 had been debited to the repairs and maintenance expense account.

Glover plc depreciates its office equipment on the straight-line basis over four years. (2) A bank loan for £60,000 was taken out on 31 August 20X4. Interest is charged at 4% per annum and payable quarterly in arrears.

Only one interest payment has been recorded in the financial records. After correction of these errors, Glover plc’s net profit will be A £148,057 B £150,465 C £152,281 D £152,665

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18. Milne plc’s equity balances as shown in its statements of financial position at 31 December 20X3 and 20X2 are as follows:

20X3 20X2 £ £ Equity share capital (£1 shares) 310,000 260,000 Share premium 47,000 37,000 Retained earnings 138,400 129,640 General reserve 25,000 10,000

During 20X3 Milne plc issued 50,000 shares at £1.20 each and paid equity dividends of £24,000. What is Milne plc’s profit for the financial year ended 31 December 20X3?

A £47,760 B £32,760 C £30,240 D £23,760

19. Murray plc’s extended trial balance for the year ended 31 July 20X0 includes a suspense account with credit balance of £860. It has been

discovered that expenses of £860 were prepaid, but the only entry to the adjustments columns of the extended trial balance was a debit entry to the expenses account of £860.

The effect of this error on Murray plc’s draft profit after tax for the year ended 31 July 20X0 currently shown by the extended trial balance is

A £860 understated B £860 overstated C £1,720 understated D £1,720 overstated

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20. At 31 May 20X6 Brownlee plc had prepaid maintenance costs of £2,581 and accrued maintenance costs of £6,209. On 1 June 20X6 the accountant processed the following opening journal: Debit Prepayments £2,581; Credit Accruals £6,209; Debit Maintenance expense £3,628.

During the year ended 31 May 20X7 cash paid for maintenance costs was correctly posted to the maintenance expense account. At the year-end Brownlee plc’s accountant correctly processed closing journals to record the required accrual of £6,854 and prepayment of £3,012. Which of the following journals will correct the three accounts? A Debit Accruals £6,209; Credit Prepayments £2,581; Credit Maintenance expense £3,628 B Debit Accruals £12,418; Credit Prepayments £5,162; Credit Maintenance expense £7,256 C Debit Maintenance expense £3,628; Debit Prepayments £2,581; Credit Accruals £6,209 D Debit Maintenance expense £7,256; Debit Prepayments £5,162; Credit Accruals £12,418

21. A business’s records show the following payroll costs for the month of August 20X6: £

Gross pay 57,820 Income tax 8,100 Employees’ national insurance 6,250 Employer’s national insurance 7,100

What is the wages expense for the business for August 20X6? A £79,270 B £71,170 C £64,920 D £57,820

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22. At 31 January 20X4 the total of the carrying amount of the list of Langridge plc’s non-current assets is £581,257. This does not equal the net balance of the non-current assets cost and accumulated depreciation accounts in Langridge plc’s nominal ledger at this date, which is £625,790. It was discovered that the only error made during the year was that the disposal of one asset had not been recorded in the nominal ledger.

Which on the following would explain this difference?

A The asset was disposed of for £44,533 resulting in a profit on disposal of £8,625 B The asset was disposed of for £44,533 resulting in a loss on disposal of £8,625 C The asset was disposed of for £53,158 resulting in a profit on disposal of £8,625 D The asset was disposed of for £53,158 resulting in a loss on disposal of £8,625

23. Laugher plc’s nominal ledger account balances at 31 December 20X9 include the following:

Purchases £194,652 Carriage in £5,687 Carriage out £4,123

Closing inventory was £2,463 less than opening inventory.

What is Laugher plc’s cost of sales in its statement of profit or loss for the year ended 31 December 20X9?

A £196,312 B £197,876 C £201,238 D £202,802

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24. Before carrying out the bank reconciliation at 30 September 20X3, Rose plc has a balance of £6,827 for cash at bank included in current assets in its draft financial statements. The bank statement at 30 September 20X3 shows interest received of £234. Once adjustment is made for this, the bank statement balance reconciles to the cash at bank balance. The reconciliation shows that payments of £4,315 and receipts of £5,082 have not yet appeared on the bank statement.

What is the balance on the bank statement at 30 September 20X3? A £5,826 B £6,294 C £7,360 D £7,828

25. Clancy plc is preparing its financial statements for the year ended 30 April 20X6. Its initial trial balance shows the following balances:

Debit Credit £ £ Tax payable at 1 May 20X5 209,100 20X5 tax paid during year ended 30 April 20X6 176,200

The estimated tax due for the year ended 30 April 20X6 is £258,400 and Clancy plc has paid £169,500 of this on account during the year. In Clancy plc’s statement of profit or loss for the year ended 30 April 20X6, the figure for income tax expense is

A £169,500 B £225,500 C £258,400 D £291,300

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26. Neita plc had share capital of 1.2 million 20p equity shares when it made a 1 for 3 rights issue at £1.60 per share on 5 July 20X7. Only £520,000 has been received from the shareholders by the end of the financial year, 31 July 20X7, and this has been entered only in the bank account in the nominal ledger.

On its extended trial balance Neita plc should debit the suspense account with £520,000 and

A Credit Share capital £80,000; Credit Share premium £440,000 B Credit Share capital £400,000; Credit Share premium £120,000 C Debit Other receivables £120,000; Credit Share capital £80,000; Credit Share premium £560,000 D Debit Other receivables £120,000; Credit Share capital £400,000; Credit Share premium £240,000

27. HealthyWeb is a member-only website and prepares its financial statements on a cash basis. For the year ended 31 December 20X1 it

decides to change its basis of reporting to the accruals basis. During this year the business receives cash from members’ subscriptions of £5,420 and pays expenses of £2,680. At 1 January 20X1 subscription arrears were £350 and subscriptions received in advance were £670. At 31 December 20X1 subscription arrears are £430 and subscriptions received in advance are £925.

On an accruals basis HeathyWeb’s net profit for the year ended 31 December 20X1 is A £1,925 B £2,565 C £2,740 D £3,555

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28. The bookkeeper preparing the financial statements for Kenny and Trott’s partnership at the end of its latest financial year has accounted for the interest on the partners’ capital accounts by expensing this in the profit and loss account and crediting it to the partners’ capital accounts.

The journal now required is

A Debit Capital accounts; Credit Current accounts B Debit Capital accounts; Credit Bank C Debit Capital accounts; Credit Interest expense D Debit Current accounts; Credit Interest expense

29. On 1 October 20X2 Scott plc bought a machine for £68,000 which had an estimated useful life of 8 years and a residual value of £2,000.

Scott plc depreciates its plant and machinery on the straight line basis. On 1 April 20X4, the asset was found to be impaired, and its recoverable amount was estimated at £30,000. At this date the asset’s remaining useful life was revised to five years with zero residual value. What is the total depreciation and impairment loss charge for this asset for the year ended 31 March 20X5?

A £34,196 B £31,625 C £31,250 D £25,625

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30. Which of the following is an objective of financial statements according to IAS 1 Presentation of Financial Statements?

A To assist users in predicting the entity’s future cash flows and, in particular, their timing and certainty B To assist management in making timely economic decisions about deployment of the entity’s resources C To enable comparison of the financial performance and financial position of different entities D To provide a basis for valuing an entity

31. Dempsey plc has occupied its rented offices since 1 January 20X2. The terms of the three-year rental agreement state that rent is £750 per

month payable in advance. In 20X2 Dempsey plc made payments of £6,750 for rent and in 20X3 it made payments of £9,750.

What amounts will appear in Dempsey plc’s financial statements at 31 December 20X3 for rent expense and rent accrual?

A Rent expense £9,000; Rent accrual £750 B Rent expense £9,750; Rent accrual £1,500 C Rent expense £9,000; Rent accrual £1,500 D Rent expense £9,750; Rent accrual £750

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32. At 1 February 20X7 Rutherford plc had equity share capital of £100,000 in 50p equity shares which it had issued in 20X0 at £1.60. On 30 November 20X7 Rutherford made a 2 for 1 bonus issue, but the company did not account for the issue on this date. Rutherford plc wishes to use the share premium account for this issue. Draft retained earnings at 31 January 20X8 were £1,364,982. What figure should be included for share premium and retained earnings in the statement of financial position at 31 January 20X8?

A Share premium £20,000; Retained earnings £1,364,982 B Share premium £120,000; Retained earnings £1,364,982 C Share premium £nil; Retained earnings £1,184,982 D Share premium £20,000; Retained earnings £1,264,982

33. Archibald Ltd prepares its financial statements under UK GAAP. On 31 March 20X5 the company has fixed assets with net book value of £210,425 and current assets of £146,810. It has liabilities falling due within one year of £88,190 and long-term borrowings of £175,000. It has reserves of £51,130 and share capital of £25,000. Its only other capital and reserves balance is share premium. Using a UK GAAP layout, what figure will Archibald Ltd present as its balance sheet total at 31 March 20X5?

A £357,235 B £269,045 C £94,045 D £76,130

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34. Which of the following are included in the cost of finished goods inventory for inclusion in the financial statements of a manufacturing company?

(1) Carriage inwards (2) Carriage outwards (3) Cash discounts received (4) Factory depreciation (5) Delivery staff wages A (1) and (4) B (1), (2) and (3) C (2), (3) and (4) D (1), (4) and (5)

35. Which one of the following is an error in only the receivables control account, and not the receivables ledger?

A Invoice omitted from the sales day book B Transposition error in posting to the receivables ledger from the cash book C Miscasting the total of the sales day book D Miscalculation of the allowance for receivables

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36. Tinkler plc’s draft trial balance at 31 October 20X8 includes the following: £

Trade and other payables 367,410

The company has not yet posted the final accrual for staff bonuses. Bonuses earned by staff for the year ended 31 October 20X8 were £38,500. At 1 November 20X7 Tinkler plc owed £26,720 to staff in respect of the previous year’s bonuses and during the year ended 31 October 20X8 bonuses paid to staff were £36,940. In Tinkler plc’s statement of financial position at 31 October 20X8, the figure for trade and other payables will be

A £368,970 B £392,570 C £394,130 D £395,690

37. Daley and Goodfellow are in partnership sharing profits and losses 5:3 after allowing for partner salaries of £40,000 and £50,000 respectively. On 1 October 20X5 Daley lent the partnership £100,000 at 8% interest per annum. The net profit for the year ended 31 March 20X6 is £244,000. How much profit will be credited to Goodfellow’s current account?

A £133,750 B £107,750 C £106,250 D £104,750

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38. In which book of original entry is VAT on sales to non-credit customers recorded?

A Sales day book B Purchases day book C Cash book D Petty cash book

39. The balances on Stanning plc’s property, plant and equipment as presented in its statements of financial position at 30 September 20X7

and 20X6 are as follows:

20X7 20X6 £ £ Property, plant and equipment 283,572 238,848

During the year ended 30 September 20X7 Stanning plc purchased property, plant and equipment for £157,860, and sold some assets for £10,500. The depreciation expense for the year ended 30 September 20X7 was £96,542. What was the loss on the sale of the assets? A £102,636 B £95,542 C £34,224 D £6,094

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40. At 30 June 20X7 Cavendish plc reviews its cash book and latest bank statement, and discovers the following errors:

(1) A cheque from a customer for £2,065 was recorded in the cash book as £2,605 (2) A cheque to a credit supplier for £76 was entered correctly in the total column of the cash book but was analysed in its payables

ledger column as £776 A Debit Suspense £700; Debit Receivables £540; Credit Payables £700; Credit Bank £540

B Debit Bank £160; Debit Receivables £540; Credit Payables £700 C Debit Payables £700; Credit Bank £160; Credit Receivables £540 D Debit Payables £700; Debit Bank £540; Credit Suspense £700; Credit Receivables £540

41. Which of the following is a cost unit?

A The cost of an hour of skilled labour B The cost per sheet of paper used C The cost per unit of electricity consumed D A unit of service in relation to which costs are ascertained

42. Fixed costs are conventionally deemed to:

A Be constant per unit of output as production volume changes B Be constant per unit of output C Be constant in total when production volume changes D Vary substantially, in total, from period to period when production is constant

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43. Emily is responsible for preparing the management accounts of Growton plc. All Growton plc employees receive a bonus each time monthly sales revenue exceeds forecast. Emily is tempted to overstate monthly sales revenue in the latest set of management accounts to ensure that employees receive a bonus.

What threat does this represent?

A Intimidation B Advocacy C Familiarity D Self-interest

44. Gross wages in March for Emelda plc, a manufacturing company, were £108,000 and were analysed as follows:

Direct labour Indirect labour £ £

Ordinary time 50,370 23,800 Overtime – basic pay 10,880 7,000 Overtime – premium 2,720 1,750 Late working allowance 5,400 2,720 Sick pay 2,760 600

The overtime and late working were incurred for a specific job that was a rush order.

The cost of direct wages is:

A £61,250 B £69,370 C £72,130 D £50,370

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45. Ramada plc uses part number YHT134 to manufacture one of its products. The following information on receipts and issues of YHT134’s has been recorded for May:

Date

Units Receipts Price

per unit

Value £ £ 1 May Opening inventory 100 12.00 1,200 3 May Receipts 300 11.52 3,456 5 May Issues (220) 12 May Receipts 170 12.48 2,122 24 May Issues (300)

Using the cumulative weighted average price method of inventory valuation, the cost of the materials issued on 5 May was:

A £2,534 B £2,587 C £2,561 D £2,640

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46. A company makes three products in a period.

Quantity (units) Labour hours per unit

Product X 1,000 8

Product Y 2,000 12

Product Z 3,000 6

Total 6,000

Overheads for the period are £100,000 and they are absorbed on the basis of labour hours. What is the fixed overhead cost absorbed by a unit of Product Z?

A £16.67 B £16.00 C £12.00 D £2.00

47. When comparing the profits reported under marginal costing and absorption costing then if the levels of inventories increased, but unit

variable costs and fixed costs remains constant,

A absorption costing profits will be lower and closing inventory valuations higher than those under marginal costing B absorption costing profits will be lower and closing inventory valuations lower than those under marginal costing C absorption costing profits will be higher and closing inventory valuations lower than those under marginal costing D absorption costing profits will be higher and closing inventory valuations higher than those under marginal costing

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48. A single product company currently sets its unit selling price at £20, which achieves a 25% mark-up on variable cost. Annual production and sales volume is 100,000 units and annual fixed costs are £160,000.

By how much would the selling price need to be increased in order to treble profit if costs, production and sales volume remain unchanged?

A 24% B 39% C 40% D 50%

49. Pugh plc sets its selling prices by adding a mark-up of 25% to the variable cost per unit.

Pugh plc has carried out market research which indicates that if the selling price is increased by 20%, the quantity sold each period is expected to reduce by 20% but the variable cost per unit will remain unchanged.

Which of the following statements is correct? A The revenue will increase and the total contribution will increase B The revenue will decrease and the total contribution will increase C The revenue will increase and the total contribution will decrease D The revenue will decrease and the total contribution will decrease

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50. Bamber plc has two divisions, Components and Finishing. Components transfers one third of its output to Finishing and sells the remainder to the external market for £22 per unit. The transfers to Finishing are made at a transfer price set at cost plus 30%.

Finishing incurs costs of £6 per unit in converting the transferred units before selling them to external customers for £30 per unit. Components costs amount to £15 per unit and the budgeted total output and sales for the period is 300 units. The reported profits for the period will be: Components Finishing A £1,850 profit £450 profit B £1,850 profit £1,050 profit C £1,850 profit £2,400 profit D £2,650 profit £350 loss

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51. A company has recorded the following costs over the last four weeks.

Cost Production Week £ Units

1 52,788 2,520 2 46,896 2,616 3 45,600 1,800 4 41,280 1,680

In week 5 the company is anticipating producing 2,380 units of product. Using the high-low method of estimation, the expected cost of producing 2,380 units is: A £50,870 B £49,855 C £45,480 D £58,480

52. The correlation coefficient between two variables, p and q, is +0.56.

The proportion of variation in p that is explained by variation in q is (to two decimal places)

A 0.28 B 0.56 C 0.31 D 1.12

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53. For a company that has a limited supply of labour available, which of the following sets out a correct sequence for budget preparation?

A Sales budget, Production budget, Finished goods inventory budget, Labour hours budget B Labour hours budget, Production budget, Sales budget, Finished goods inventory budget C Labour hours budget, Sales budget, Production budget, Finished goods inventory budget D Production budget, Sales budget, Finished goods inventory budget, Labour hours budget

54. A retailing company makes a gross profit of 50% on sales. The company plans to increase inventory by 10% over the next financial period.

The budgeted sales revenue for the next period is £52,000. Opening inventory is valued at £3,000.

What are the budgeted inventory purchases for the next financial period?

A £25,700 B £26,300 C £51,700 D £52,300

55. Which of the following is not a description of a 'top-down' budgeting process?

A A top-down budget sets out the board's objectives for the forthcoming period B Top management prepare a budget with little or no input from operational managers C The top level budget is financial, and will contain an income statement, balance sheet and cash flow budget D The process starts with sales, then progresses to production, materials usage and other functional budgets

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56. Which of the following is not a characteristic of rolling budgets?

A They reduce the element of uncertainty in budgeting B A new accounting period, such as a month or a quarter, is added as each old one expires C The budget is more realistic and certain as there is a short period between the preparation of budgets D Each item of expenditure has to be justified in its entirety in order to be included in the next year's budget

57. A machine was purchased during 20X7 for £200,000 and has been depreciated by £60,000 in each of 20X7 and 20X8. It is expected to be

sold during 20X9 for £15,000 and only £50,000 depreciation will be charged in 20X9.

What is the net cash flow that will appear in the cash budget for 20X9?

A £0 B £35,000 outflow C £15,000 outflow D £15,000 inflow

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58. The following data have been extracted from the budget of Hector plc:

Sales £1,248,000 Gross profit on sales 23% Increase in trade payables over the year £36,000 Decrease in cost of inventory held over the year £52,800

Hector’s budgeted payments to trade suppliers totals:

A £872,160 B £944,160 C £977,760 D £1,049,760

59. The following information relates to a business:

Debt collection period 12 weeks Raw material inventory holding period 4 weeks Suppliers' credit period 6 weeks Production period 2 weeks Finished goods inventory holding period 5 weeks

What is the cash operating (working capital) cycle of the business?

A 17 weeks B 29 weeks C 23 weeks D 5 weeks

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60. A company has a quick (liquidity) ratio (receivables divided by payables and bank overdraft) equal to 0.9. In order to reduce its bank overdraft, the directors decide to reduce the inventory days from 35 days to 30 days.

What would be the effect on the company's cash operating cycle and quick (liquidity) ratio if this change were to be achieved? Cash operating cycle Quick (liquidity) ratio A Increase Increase B Decrease Decrease C Decrease Stay the same D Decrease Increase

61. Which of the following statements about management control reports is not correct?

A Based on the information contained in reports, managers may decide to take no action B Reports should be clear and comprehensive C Reports could usefully include information about uncontrollable items D Reports should be completely accurate

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62. Which of the following is an example of budget bias?

A A manager uses his/her best estimate of likely costs when setting the budget B A manager's marketing budget is disproportionately small in comparison with the budgeted revenue to be generated C A manager underestimates customer numbers when setting the budget to ensure that the budget target can be easily exceeded D A manager will consult with his/her team to try to establish an appropriate sales volume target

63. Moon Division is an investment centre within Solar plc. Over which of the following is/are the manager of Moon likely to have control?

(1) Apportioned head office costs (2) Transfer prices from Moon to other divisions within Solar plc (3) Local (ie divisional) inventory levels (4) Fixed costs incurred in the division

A (2), (3) and (4) only B (1), (2) and (4) only C (1) only D (3) and (4) only

64. Which of the following is a feature of effective feedback reports?

A Distributed to the board of directors B Contain at least thirty pages of information C Sufficiently accurate for the purpose intended D Produced on a 6-monthly basis

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65. Which of the following would cause a cost variance?

A Actual resource usage is different from budgeted resource usage B Actual prices are different from forecast prices C Actual production volume is the same as budgeted production volume D Actual prices are the same as budgeted prices

66. Harper plc uses a standard costing system. The budget for one of its products for September includes labour cost (based on 4 hours per

unit) of £17,600. During September 350 units were made which was 25 units more than budgeted. The labour cost incurred was £11,850 and the number of labour hours worked was 1,000.

Harper's labour rate variance for September was:

A £1,690 (Adverse) B £7,104 (Favourable) C £1,690 (Favourable) D £7,104 (Adverse)

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67. Extracts from Patrid plc’s records for July are as follows:

Actual Budget Production 1,248 units 1,344 units Variable production overhead cost £7,488 £7,677 Labour hours worked 3,744 5,376

The variable production overhead total variance for July is:

A £359 (Adverse) B £359 (Favourable) C £189 (Adverse) D £189 (Favourable)

68. Devon Ltd is a manufacturer of a single product. Data for March from Devon's records are:

Budgeted fixed overhead per unit £18 Budgeted output 28,800 units Actual output 24,000 units Actual fixed overheads £471,200

What is Devon's fixed overhead expenditure variance for March?

A £39,200 (Adverse) B £39,200 (Favourable) C £47,200 (Favourable) D £47,200 (Adverse)

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69. The following information relates to a product:

Actual Standard £ per unit £ per unit £ per unit £ per unit Selling price 26 29 Variable material and labour 6 5 Variable overhead 2 3

8 8

Contribution 18 21

Budgeted sales volume for the latest period was 1,870 units. The actual sales volume achieved was 2,000 units. Which of the following shows the correct combination of the favourable sales volume variance and the adverse sales price variance? Sales volume variance Sales price variance A £2,730 £5,610 B £2,340 £6,000 C £2,730 £6,000 D £3,770 £6,000

70. Cornish Ltd is a manufacturing company. In April Cornish used 33,840 kg of material at a total standard cost of £245,340. The material

usage variance was £1,914 adverse.

Calculate the standard allowed weight of material for the actual production achieved by Cornish in April. A 33,576 kg B 33,840 kg C 34,104 kg

D 31,926 kg

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71. When using limiting factor analysis in order to calculate maximum profit, which of the following assumptions should be made?

A Fixed costs per unit are not changed by increases or decreases in production volume B Fixed costs in total are not changed by increases or decreases in production volume C Variable costs per unit are changed by increases or decreases in production volume D Variable costs in total are not changed by increases or decreases in production volume

72. Gorse plc manufactures three products which have the following unit contributions and labour requirements:

Unit Labour Product contribution requirement

£ Hours A1 11.30 3 B2 9.60 2 C4 10.20 2

Due to industrial action only 4,600 labour hours are available next period, when expected demand is 1,000 units of each product. Fixed costs are £11,060 for the period. What is the maximum profit that can be achieved next period?

A £8,400 B £11,000 C £12,400 D £20,040

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73. Desert plc makes a single product and incurs fixed costs of £225,000 per month. Variable cost per unit is £55 and each unit sells for £105. Monthly sales demand is 7,000 units.

The breakeven point in terms of monthly sales units is:

A 2,143 units B 2,500 units C 4,091 units D 4,500 units

74. A company has budgeted sales revenue of £750,000 for its first quarter and achieved a contribution ratio of 30%. Fixed production costs

are £325,000 and fixed selling costs are £35,000.

What is the breakeven sales revenue?

A £116,667 B £750,000 C £1,083,000 D £1,200,000

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75. Garden plc is considering purchasing a new machine at a cost of £110,400 that will be operated for four years, after which time it will be sold for an estimated £9,600. Forecast operating profits to be generated by the machine are as follows:

Year £

1 19,600 2 39,600 3 22,400 4 32,400

Garden uses a straight line depreciation policy.

What are the Payback Period (PP) and the average Accounting Rate of Return (ARR), calculated as average annual profits divided by the average investment? PP ARR A 2.02 years 25.8% B 3.89 years 25.8% C 3.89 years 47.5% D 2.02 years 47.5%

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76. Meld plc is taking out a leasing agreement for five years. Meld must pay £24,000 at the beginning of the first year as a deposit, to be followed by four equal payments at the beginning of years two, three, four and five. At a discount rate of 10%, the present value of the four equal payments is £63,590.

The total amount to be paid during the lease period is:

A £87,590 B £96,380 C £104,240 D £112,258

77. When discussing the Internal Rate of Return (IRR), accounting rate of return (ARR) and Net Present Value (NPV) techniques, which of the

following statements is not true?

A Both IRR and NPV methods give the same accept or reject decision, when there is a pattern of conventional cash flows B The IRR method and the ARR method can be confused C The NPV approach is superior if discount rates are expected to vary over the life of the project D IRR is technically superior to NPV and easier to calculate

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78. The NPV profiles of two projects P and Q have been sketched as follows:

Which of the following statements about the two projects is correct?

A The sum of the cash flows of project Q is £60,000 B Both projects earn the same NPV at a discounted rate of 30% C Project Q has two IRRs D Both projects are acceptable at a discount rate of 30%

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79. A conventional project has a payback period of 4 years and has a constant annual cash inflow. The cost of capital is 15%.

Which of the following statements is true?

A The net present value of the project must always be negative B The internal rate of return of the project must equal 15% C The average accounting rate of return is never less than zero D The net present value of the project must always be positive

80. Creator plc intends to purchase a factory at a cost of £960,000. The existing tenant in the factory will pay an initial rent of £168,000 at the

end of each of years 1 to 5 and this will increase to a rent of £218,000 at the end of each of years 6 to 10. At the end of year 10 the directors of Creator believe they could sell the property for £1.5m.

Calculate the discounted payback period of the investment using a cost of capital of 10%.

A 8.9 years B 8.4 years C 7.9 years D 6.9 years

ITEM 80 COMPLETES THIS TEST

FINANCIAL MANAGEMENT ACCOUNTING SKILLS AND … · 2017. 5. 5. · financial management accounting...

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