Course Introduction
Financial Accounting
Exam Solutions
Financial Accounting is an essential course that introduces students to the principles and practices of recording, summarizing, and interpreting financial information. The course covers fundamental topics such as the accounting cycle, preparation of financial statements, and the analysis of assets, liabilities, equity, revenues, and expenses. Students will learn how to apply generally accepted accounting principles (GAAP) to ensure accurate and ethical reporting, making them proficient in evaluating the financial health of businesses and organizations. This foundation is critical for anyone pursuing careers in accounting, finance, or related business fields.
Recommended Textbook
Accounting An Introduction 6th Edition by Peter Atrill
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14 Chapters
933 Verified Questions
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Page 2
Chapter 1: Introduction to Accounting
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Sample Questions
Q1) The financial statement which shows all the changes in the owners' interest in the net assets of the business is:
A) statement of changes in owners' equity.
B) statement of cash flows.
C) statement of comprehensive income.
D) none of the above.
Answer: A
Q2) The statement concerning differences between financial and management accounting which is false is:
A) management accounting is less constrained than financial accounting.
B) managers have much more control over the form and content of their reports.
C) there is no overlap between management accounting and financial accounting.
D) the distinction between the two areas, to some extent, reflects differences in access to financial information.
Answer: C
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Chapter 2: Measuring and Reporting Financial Position
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Sample Questions
Q1) The effect on the statement of financial position when the owner contributes her private vehicle for the exclusive use of the business is:
A) increase asset vehicle; increase equity.
B) increase asset vehicle; decrease equity.
C) increase asset vehicle; increase owner's drawings.
D) none of the above.
Answer: A
Q2) Identify the item which is not necessarily a liability.
A) Provision for holiday pay.
B) Bank overdraft.
C) Loan to employee.
D) None of the above, i.e., all are necessarily liabilities.
Answer: C
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Chapter 3: Measuring and Reporting Financial Performance
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Sample Questions
Q1) Identify the outgoing that could not appear in the statement of financial performance.
A) Interest paid.
B) Wages and salaries.
C) Purchase of flowers for the waiting room.
D) Repayment of loan.
Answer: D
Q2) Under accrual accounting,profit is measured as:
A) income minus expenses.
B) assets minus liabilities.
C) sales minus cost of sales.
D) cash sales minus payments for expenses.
Answer: A
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Page 5
Chapter 4: Introduction to Limited Companies
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Sample Questions
Q1) Redeemable preference shares:
A) are the same as bonus shares.
B) can be repurchased by the company.
C) allow the holders full voting rights.
D) can be exchanged for ordinary shares.
Q2) The company 'Raider Limited' must be:
A) a proprietary company.
B) a public company.
C) a private company.
D) none of the above.
Q3) Which of these is not a consequence of the status of a company as a separate legal entity?
A) The right to retain profits.
B) The obligation to pay taxation.
C) The right to enter into contracts in its own name.
D) None of the above, i.e., all are consequences of the status of a company as a separate legal entity.
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6
Chapter 5: Regulatory Framework for Companies
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Sample Questions
Q1) Use the data below to calculate MNB Ltd's share issue made in 2014.
Equity balance (01/07/2014)- $690,000
Equity balance (30/06/2015)- $1,070,000
Retained Earnings (30/06/2015)- $230,000
There were no dividends declared in the current year and no other reserve accounts.
A) $610,000
B) $150,000
C) $460,000
D) $380,000
Q2) Which of the following organisations would be most likely to elect to order their assets on the statement of financial position according to liquidity?
A) Retailer.
B) Credit union.
C) Manufacturer.
D) Builder.
Q3) Three key groups associated with companies are directors,shareholders and auditors.
a.Explain the relationship between these three groups.
b.Define a reporting entity and a disclosing entity.
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Page 7
Chapter 6: Measuring and Reporting Cash Flows
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Sample Questions
Q1) How much cash was received from the disposal of machinery?
A) $100,000.
B) $20,000.
C) $110,000.
D) $90,000.
Q2) Xi Co provides you with the following information about its equipment account: Opening balance of equipment \(\quad\$ 300,000\)
Closing balance of equipment \(\quad \$ 550,000\)
If machinery that originally cost $100,000 was sold during the year,what was the value of new equipment purchased?
A) $250,000.
B) $350,000.
C) $550,000.
D) $150,000.
Q3) Which transaction would not appear in the body of a statement of cash flows?
A) Acquisition of assets by means of a share issue.
B) Purchase of a building by incurring a mortgage to the seller.
C) Conversion of a liability to equity.
D) All of the above.
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Page 8
Chapter 7: Corporate Social Responsibility and Sustainability Accounting
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Sample Questions
Q1) Which of the following would not be seen as a positive CSR disclosure?
A) Recycling materials.
B) Rehabilitating mining sites.
C) Admission of excessive pollution emissions.
D) Using environmental audits.
Q2) Which of the following statements relating to integrated reporting is incorrect?
A) There are no similarities at all between the integrated and GRI frameworks.
B) The framework for integrated reporting appears to be more aligned with traditional accounting principles than with the GRI framework.
C) Integrated reports give the impression of being more business oriented than socially or environmentally focussed.
D) Integrated reports appear to target the financial providers.
Q3) The collective term for any individual or group with an interest in the activities of an entity is a:
A) creditor.
B) shareholder.
C) manager.
D) stakeholder.
Q4) Briefly outline the essence of the balance scorecard approach.
Page 9
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Chapter 8: Analysis and Interpretation of Financial Statements
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Sample Questions
Q1) The following information was extracted from the financial records of Goss Ltd for the year ended 30 June 2014:
\[\begin{array} { l r }
\text { Cash Sales } & \$ 30,000 \\
\text { Credit Sales } & 180,000 \\
\text { Accounts receivable } & 25,000 \\
\text { Cost of Sales } & 130,000
\end{array}\]
If there are 365 trading days per year,calculate for the managing director the number of days that accounts receivable are outstanding at 30 June 2014.
A) 86 days.
B) 51 days.
C) 114 days.
D) 43 days.
Q2) The number of times BBB's accounts receivable turned over for 2015 is:
A) 5.0 times.
B) 1.8 times.
C) 3.8 times.
D) 2.0 times.
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Chapter 9: Costvolumeprofit Analysis and Relevant Costing
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Sample Questions
Q1) The margin of safety is best described as:
A) the difference between the actual output and the break-even output.
B) the difference between variable costs and total output.
C) the difference between the fixed costs and total revenue.
D) the difference between break-even point and total revenue.
Q2) Refer to the table above.Management is contemplating closing the Holiday Packages service; this would involve a cost saving of $40,000 per annum,namely,the variable costs.The fixed costs are not expected to change.The best advice to management is:
A) close the service, and the business would make a profit of $110,000.
B) do not close the service, because profit would decrease by $60,000.
C) close the service and save $40,000.
D) do not close the service, because profit would decrease by $90,000.
Q3) Refer to the table above.Increasing the sales price to $6.00 and having a sales volume of 3,000 photo frames would result in:
A) a profit of $3,000.
B) a loss of $1,000.
C) breaking even.
D) a profit of $1,000.
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Page 11
Chapter 10: Full Costing
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Sample Questions
Q1) Both Australian and International standards require inventory to be valued at:
A) full cost.
B) variable cost.
C) manufacturing full cost.
D) direct cost.
Q2) Refer to the table above.Total budgeted indirect costs for the year are:
A) $117,000.
B) $77,000.
C) $72,000.
D) $57,000.
Q3) Refer to the table above.The management accountant at Osborne Ltd,wants to revise his estimates and use machine hours as the allocation base to determine the overhead recovery rate.The revised overhead recovery rate (rounded)per machine hour will be:
A) $4.88 per MH.
B) $9.00 per MH.
C) $7.38 per MH.
D) $8.75 per MH.
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Chapter 11: Budgeting
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Sample Questions
Q1) Refer to the table above.The labour variance can best be described as:
A) an adverse variance resulting from excessive use of labour and/or a rise in the hourly rate of pay.
B) a favourable variance resulting from the efficient use of labour and/or a reduction in the hourly pay rate.
C) being caused by an increase in the pay rate for labour.
D) being caused by more efficient labour.
Q2) The typical overall time period for which a budget is set is:
A) two years.
B) three months.
C) twelve months.
D) five years.
Q3) The best description of the role of the budget committee is:
A) supervising and taking responsibility for the budget setting process.
B) predicting the budget.
C) setting goals for individual departments.
D) predicting the economic environment for the period.
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Chapter 12: Capital Investment Decisions
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Sample Questions
Q1) Which of the following statements is incorrect?
A) It may be very difficult to quantify all factors that impact on an investment decision.
B) Investment decisions are made easier as cash forecasts are always correct.
C) The validity of assumptions made in relation to an investment proposal may influence the final decision.
D) The results from using an investment appraisal method is only one input into the final decision.
Q2) A problem with the Internal Rate of Return method is that it:
A) ignores the time value of money.
B) has difficulty handling projects with unconventional cash flows.
C) ignores the timing of cash flows.
D) all of the above.
Q3) Which of these factors influences the returns required by investors from an investment project?
A) Interest foregone.
B) Inflation.
C) Risk premium.
D) All are influences.
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14
Chapter 13: The Management of Working Capital
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Sample Questions
Q1) Which of these is not considered a cost of holding inventory?
A) Opportunity cost of having funds tied up in inventory.
B) Risk of bad debts.
C) Cost of storage and handling.
D) Risk of obsolescence.
Q2) The operating cash cycle is measured as:
A) inventory turnover period + accounts receivable turnover period - creditor turnover period.
B) inventory turnover period + accounts receivable turnover period + accounts payable turnover period.
C) inventory turnover period + accounts receivable turnover period.
D) none of the above.
Q3) Which statement concerning trade credit is true?
A) One business's trade creditor is the other's trade debtor.
B) In a period of inflation, it is better to pay off goods bought on credit faster.
C) In most businesses, an extra charge is made to those who choose to pay on credit.
D) All of the statements are true.
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15
Chapter 14: Financing the Business
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Sample Questions
Q1) A loan provided by a financial institution based on a proportion of the face value of credit sales outstanding,is known as:
A) a secured loan.
B) invoice discounting.
C) factoring.
D) bank overdraft.
Q2) Preference shares which allow the investor to receive dividends in arrears,when the company declares and pays a dividend,are called:
A) cumulative preference shares.
B) redeemable preference shares.
C) participating preference shares.
D) none of the above.
Q3) Stretching the time taken to pay off accounts payable may do all of the following except:
A) lower the buyer's credit rating.
B) damage relationships with suppliers.
C) lead to refusal of credit by suppliers.
D) lower the number of discounts foregone.
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