CIS March 2012 Exam Diet
Examination Paper 1.1:
Financial Accounting and Financial Statement
Analysis
Economics and Financial Markets
Quantitative Analysis and Statistics
Level 1
Financial Accounting and Financial Statement Analysis (1 - 34)
1.
The primary purpose of financial accounting and reporting is to:
A. Advise Directors.
B. Satisfy stewardship and accountability responsibilities.
C. Aid decision-making and good management.
D. All of the above.
2.
Which of the following is typically not an asset in the books of a sole trader?
A. Goodwill.
B. Prepaid rent.
C. Stock.
D. Cash deposit.
3.
Which of the following is not a source document for the preparation of the financial
accounts of a business?
A. Sales journal.
B. Credit note.
C. Trial balance.
D. Sales invoice.
4.
Which of the following is not a reason for depreciating non-current assets?
A. Passage of time.
B. Revaluation.
C. Wear & tear.
D. Obsolescence.
5.
Which of the following errors will not affect the balancing of the trial balance?
A. Error of principle.
B. Error of commission.
C. Compensating error.
D. All of the above.
6.
Mai Kudi’s income statement shows sales of N1,000,000; cost of goods sold of
N400,000; pre-interest operating expense of N300,000; and interest expense of
N100,000. Mai Kudi’s interest coverage ratio is closest to:
A. 2 times.
B. 3 times.
C. 4 times.
D. 10 times.
7.
What is the effect of under-valuation of closing stock on the income statement of any
organization
A. Capital will be understated.
B. Net profit will be understated.
C. Net profit will be overstated.
D. Expenses will be understated.
8.
Which of the following ratios is used to measure the effectiveness of the use of a
company’s resources to generate revenue?
A. Gearing ratio.
B. Asset turnover.
C. Quick ratio.
D. Gross Margin.
9.
In preparing financial statements, accountants normally assume that an entity would
continue in business into perpetuity without any factor that would force the business
into liquidation, or make it to curtail its scale of operations significantly. Which of the
following accounting concepts is applicable?
A. Consistency.
B. Going concern.
C. Accrual.
D. Historical cost.
10. Using the following information, compute the firm’s cash flow from operating
activities
N
Net income
A.
B.
C.
D.
120,000
Decrease in accounts receivable
20,000
Depreciation
25,000
Increase in inventory
10,000
Increase in accounts payable
7,000
Decrease in wages payable
5,000
Profit from the sale of land
2,000
N143,000
N155,000
N159,000
N165,000
11. The only current assets possessed by Omorele Limited are cash at bank of N250,000,
debtors of N200,000 and stock of N450,000. The current ratio of the company is 2:1.
What is the acid test ratio?
A. 1:2
B. 1:1
C. 1:4
D. 1:6
12. The recognition of an expenditure that would normally be regarded as an operating
expense, as part of the cost of the acquisition, construction, or production of an asset
is referred to as:
A. Amortization.
B. Depreciation.
C. Capitalization.
D. Reconstruction.
13. Which of the following characteristics least likely contributes to the reliability of
financial statements?
A. Substance over form.
B. Comparability.
C. Prudence.
D. Completeness.
14. Which of the following activities is not considered a financing activity in the cash flow
statement of a company?
A. The purchase of a long-term asset.
B. The retirement of debt by way of sinking fund activities.
C. The issuance of new common shares.
D. The payment of preferred dividends.
15. A company incurs research costs during the accounting year ended 31st December
2011, amounting to N125 million and development costs of N490 million. The
accountant informs you that the recognition criteria (as prescribed in IAS 38) have
been met. What effect will the above transactions have on the financial statements
when following the International Financial Reporting Standard (IFRS)?
A.
B.
C.
D.
Income Statement
Expense N615 million
Expense N125 million
Expense N490 million
No impact
Statement of Financial Position
No impact
Capitalise N490 million
Capitalise N125 million
Capitalise N125 million
16. Which of the following combinations most accurately identify an element required to
measure a company’s financial position and one that is used to measure a company’s
performance?
A.
B.
C.
D.
Financial Position
Liability
Expenses
Income
Assets
Financial Performance
Asset
Assets
Liabilities
Expenses
17. Which of the following statements is correct about changing an accounting estimate?
A. It is not allowed in the International Financial Reporting Standard (IFRS).
B. It is reported prospectively.
C. It requires restatement of all prior-period statements presented in the current
financial statement.
D. It is reported by adjusting the opening balance of retained earnings.
18. Which of the following would most likely result in a current liability?
A. Possible warranty claims from customers.
B. Possible claim by an aggrieved customer.
C. Estimated future operating losses.
D. Estimated income taxes for the current year.
19. An
A.
B.
C.
D.
accountant would include which of the following in a firm’s closing inventory?
Storage cost of finished goods.
Fixed production overheads.
Selling and administrative cost.
All of the above.
20. An
A.
B.
C.
D.
asset is impaired when ___________
Its value in use is higher than the carrying amount.
Its carrying amount is higher than its recoverable amount.
Its recoverable amount is higher than its carrying amount.
Its net realisable value is higher than its value in use.
Use the following data to answer questions 21 to 26:
You are given below the Statement of Financial Position and Income Statement of a
firm.
Statement of Financial Position
As at 31st December
Non - Current Assets:
Property, Plant and Equipment
Current Assets:
Inventory
Accounts receivable
Cash
Total Asset
Liabilities & Equity
Current liabilities:
Accounts payable
Interest payable
Dividends payable
Bank overdraft
Ordinary shares
Retained earnings
2011
1,350
900
700
300
250
2,600
800
400
400
2,500
600
20
50
1,130
1,800
450
350
2,600
1,240
10
50
500
1,800
400
300
2,500
Income statement for the year ended 31st December 2011
Sales
1,500
Cost of goods sold
1,100
Gross Profit
400
Depreciation
100
Interest expense
60
Taxes
40
Net Income
200
21. What is the current ratio of the firm for 2011 and 2010 respectively?
A.
B.
C.
D.
2011
0.14:
0.31:
0.69:
1.44:
1
1
1
1
2010
0.22:1
0.44:1
0.89:1
1.39:1
22. What is the total cash paid to suppliers during the year 2011?
A. N700
B. N800
C. N1,100
D. N1,640
23. What is the gross margin and net margin for 2011?
A.
B.
C.
D.
Gross margin
26.67%
73.33%
73.33%
50%
Net margin
13.33%
26.33%
13.33%
13.33%
2010
24. What is the firm’s return on equity for 2011?
A. 25%
B. 44.44%
C. 88.88%
D. 187.5%
25. Which of the following statements is true about the company’s gearing position?
A. The level of gearing rose between 2010 and 2011
B. The level of gearing reduced between 2010 and 2011
C. The company is ungeared.
D. The company has low gearing.
26. If the sales figure for 2010 was N1,200; which of the following statements is most
likely correct about the firm’s utilization of its total assets?
A. The firm made better use of its assets in 2010 compared with 2011 as it had
more cash in the Statement of Financial Position.
B. The firm made better use of its assets in 2011 compared to 2010 as it had more
non-current assets in 2011 compared to 2010.
C. More information is required to reach a conclusion on this.
D. The firm made better use of its assets in 2011 compared to 2010, as asset
turnover improved.
27. In its first year of operations, a firm records a temporary difference between the
carrying value and the tax written down value of the assets of N10,000 (loss). The
prevailing tax rate is 30%. The firm’s balance sheet will report a deferred tax:
A. Asset of N3,000
B. Asset of N10,000
C. Liability of N3,000
D. Liability of N10,000
28. Which of the following statements (in general) is correct?
A. A low receivables turnover is desirable.
B. The lower the total debt-to-equity ratio, the higher the financial risk for a firm.
C. An increase in asset turnover would impact earnings positively.
D. A current ratio of 5:1 is always desirable.
29. As a result of an error, a bookkeeper wrongly treated the cost of maintenance and
repairs of a factory machine as addition to non-current assets. What impact does this
have on the financial statement?
A. An overstatement of assets and understatement of expenses.
B. An overstatement of assets and understatement of liabilities.
C. An overstatement of assets and liabilities.
D. An understatement of assets and expenses.
30. Which of the following is a financial instrument?
I. Investment in ordinary shares.
II. A share option.
III. Trade creditors.
A.
B.
C.
D.
I only.
I and II only.
II and III only.
I, II and III
31. A Trial Balance is made up of a list of debit balances and credit balances. Which of
the following statements is correct?
A. Every debit balance represents an expense.
B. Assets are represented by debit balances.
C. Liabilities are represented by debit balances.
D. Income is included in the list of debit balances.
32. A contingent asset in accordance with IAS 37 should be adjusted in the financial
statements when:
A. It is probable that economic benefit will flow to an entity.
B. It is possible that economic benefit will flow to an entity.
C. There is a remote possibility that economic benefit will flow to an entity.
D. It is virtually certain that economic benefit will flow to an entity.
33. When a trade discount is received from a supplier the double entry is as follows:
A.
B.
C.
D.
Debit
Discounts received
Payables
Discount received
Payables
Credit
Payables
Discount received
Income statement
Discount allowed
34. At 1 July 2010, Yaroyaro, a limited company, had a balance on their share premium
account of N320,000 and N1,500,000 on their ordinary share capital. This consists of
ordinary shares with a nominal value of N1.25 each. During the year to 30 June
2011, Yaroyaro made a bonus issue of 1 for 6. What is the balance on the share
premium account at 30 June 2011?
A. N120,000
B. N70,000
C. N75,000
D. N320,000
Economics and Financial Markets (35 - 67)
35. In the equation GDP = C + I + G + (X - M) , imports (M) are subtracted from the
other types of expenditure because:
A. Imports reduce national welfare.
B. Other countries do not import goods from the U.S
C. The value of imports is included in the other components of spending.
D. The value of imports is difficult to determine due to the fact that they are
frequently stated in terms of foreign currency.
36. Which of the following is considered the most important function of the Central Bank?
A. Controlling the money supply through monetary policy.
B. Supervising commercial banks.
C. Supplying the economy with the paper currency.
D. Providing for the collection of cheques.
37. The velocity of money measures:
A. The amount of spending in the economy.
B. The average number of times a currency is spent on new goods and services in a
year.
C. The relationship between the value of money and the price level.
D. The relationship between the money supply and interest rates.
38. If a 5% increase in the price of one good result in a decrease of 2% in the quantity
demanded of another good, then it can be concluded that the two goods are:
A. Complements.
B. Substitutes.
C. Independent.
D. Normal.
39. If a nation had a balance of payment surplus and exchange rates floated freely, the
foreign exchange rate for its currency would:
A. Rise, its export would increase, and its imports would decrease.
B. Rise, its exports would decrease, and its imports would increase.
C. Fall, its exports would increase, and its imports would decrease.
D. Fall, its exports would decrease and its imports would increase.
40. For
A.
B.
C.
D.
a market outcome to be efficient:
Marginal costs and marginal benefits must be zero.
There can be external benefits but no external costs.
Marginal benefits and marginal costs must be equal.
Total benefits and total costs must be equal.
41. Which of the following would cause aggregate consumption spending to increase?
A. An increase in disposable income.
B. An increase in the price level.
C. An increase in the interest rate.
D. A decrease in the expected level of future income.
42. Which of the following would cause a shift to the right of the investment function?
A. An increase in interest rates.
B. A decrease in expected profits.
C. An increase in taxes.
D. An increase in the capacity utilization above 85%
43. To
A.
B.
C.
D.
be classified as a financial intermediary, an institution must:
Collect funds from savers and control the money supply.
Accept deposits and make loans.
Pay interest to depositors.
Make loans, but leave the acceptance of deposits to others.
44. Deficit spending by the government is best described as:
A. Expansionary fiscal policy.
B. Contractionary fiscal policy.
C. Expansionary monetary policy.
D. Contractionary monetary policy.
45. What statement would best complete a short definition of economics, ‘Economics is
the study of ___________
A. How businesses produce goods and service.
B. The efficient use of scarce productive resources.
C. The equitable distribution of society’s income and wealth.
D. The printing and circulation of money throughout the economy.
46. The law of supply states that, other things being constant, as price increases:
A. Supply increases.
B. Supply decreases.
C. Quantity supplied increases.
D. Quantity supplied decreases.
47. The use of exchange controls to eliminate a nation’s balance of payments deficit
results in decreasing the nation’s:
A. Imports.
B. Exports.
C. Price level.
D. Income.
48. If a person’s nominal income increases by 8% while the price level increases by 6%,
the person’s real income:
A. Decreases by 2%
B. Increases by 14%
C. Decreases by 14%
D. Increases by 2%
49. Which of the following contributes to cost-push inflation?
A. An increase in employment and output.
B. An increase in per unit production costs.
C. A decrease in resources prices.
D. An increase in unemployment.
50. The traditional Phillips curve shows the:
A. Inverse relationship between the rate of inflation and the unemployment rate.
B. Inverse relationship between the nominal and the real wage.
C. Direct relationship between unemployment and demand pull inflation.
D. Trade off between the short run and the long run.
51. The IS-LM diagram details the simultaneous determination of equilibrium values of
the interest rate and the level of national income as a result of conditions in the:
A. Money and capital markets.
B. Goods and bond markets.
C. Security and financial markets.
D. Goods and money markets.
52. If disposable income is N375 billion when the average propensity to consume is 0.8,
it can be concluded that:
A. The marginal propensity to consume is also 0.8
B. Consumption is N325 billion.
C. Saving is N75 billion.
D. The marginal propensity to save is 0.2
53. The production possibilities curve is:
A. Concave.
B. Convex.
C. Linear.
D. Positive.
54. The demand curve and its inverse relationship between price and quantity demanded
is based on the assumption of:
A. Other things being equal.
B. Changing expectations.
C. Complementary goods.
D. Increasing marginal utility.
55. If a 5% fall in the price of a commodity causes quantity supplied to decrease by 8%,
supply is:
A. Inelastic.
B. Unit elastic.
C. Elastic.
D. Perfectly inelastic.
56. A firm is encountering constant returns to scale when it increases all of its inputs by
20% and its output increases by:
A. 10%
B. 15%
C. 20%
D. 25%
57. In pure competition, product price is:
A. Greater than marginal revenue.
B. Equal to marginal revenue.
C. Equal to total revenue.
D. Greater than total revenue.
58. If gross private domestic investment is greater than depreciation, the economy will
most likely be:
A. Static.
B. Expanding.
C. Declining.
D. Experiencing inflation.
59. Insufficient total spending in the economy result in:
A. Frictional unemployment.
B. Structural unemployment.
C. Cyclical unemployment.
D. Disguised unemployment.
60. With a proportional tax system, as the level of income increases in an economy, the
average tax rate will:
A. Increase.
B. Decrease.
C. Remain the same.
D. Either increase or decrease.
61. Which of the following is a more expansionary way for government to finance a
budget deficit?
A. Borrowing money in the money market.
B. Decreasing government spending.
C. Increasing taxes.
D. Creating new money.
62. When the international value of the Naira rises ___________
A. Nigeria exports tend to increase.
B. Nigeria import tends to decrease.
C. Nigeria net exports tend to decrease.
D. Nigeria net exports tend to increase.
63. Total output or real GDP in any year is equal to:
A. Labour inputs divided by resources output.
B. Labour productivity multiplied by real output.
C. Worker-hours multiplied by labour productivity.
D. Worker-hours divided by labour productivity.
64. A nation’s balance of trade is equal to its exports less its imports of:
A. Goods.
B. Goods and services.
C. Financial assets.
D. Official reserves.
65. Floating exchange rates:
A. Tend to correct balance of payments imbalances.
B. Reduce the uncertainties and risks associated with international trade.
C. Increase the World’s need for international monetary reserves.
D. Tend to expand the volume of World trade.
66. An
A.
B.
C.
D.
increase in reserve requirements:
Does not affect the size of the monetary base.
Causes the money multiplier to rise.
Causes the money supply to rise.
Causes the supply of credit to increase.
67. The use of government spending and taxes to affect aggregate demand and
aggregate supply is called:
A. Monetary policy.
B. Fiscal policy.
C. Expenditures policy.
D. Aggregate policy.
Quantitative Analysis and Statistics (68 - 100)
68. An analyst estimated that ABC’s earnings will grow from N3 to N4.50 per share over
the next eight years. What is the rate of growth in ABC’s earnings?
A. 4.9%
B. 5.2%
C. 6.7%
D. 7.2%
69. Should a company accept a project that has an IRR of 14%, and an NPV of N2.8
million if the cost of capital is 12%?
A. Yes, based only on the NPV.
B. Yes, based on the NPV and IRR.
C. Yes based only on the IRR.
D. No, based on both the NPV and IRR.
70. A portfolio consists of 52 stocks. There are 13 bluechip stocks and 13 penny stocks in
the mix. What is the probability of picking a bluechip stock or penny stock at
random?
A. 0.5
B. 0.6
C. 0.25
D. 1
71. A firm’s revenue function is given as: R = 240x + 57x2 - x3 . What is the output
level that maximizes marginal revenue?
A. 60
B. 40
C. 80
D. 100
Use the following information to answer questions 72 to 78:
XYZ Limited Annual Stock Returns
2006
22%
2007
5%
2008
-7%
2009
11%
2010
2%
2011
11%
72. What is the arithmetic mean return for XYZ stock?
A. 7.3%
B. 8.0%
C. 11.0%
D. 12.0%
73. What is the median return for XYZ stock?
A. 7.3%
B. 8.0%
C. 11.0%
D. 12.0%
74. What is the mode of the returns for XYZ stock?
A. 7.3%
B. 8.0%
C. 11.0%
D. 22.0%
75. What is the range for XYZ stock returns?
A. 5.20%
B. 7.33%
C. 23.0%
D. 29.0%
76. What is the mean absolute deviation for XYZ stock returns?
A. 5.20%
B. 7.33%
C. 29.0%
D. 30.0%
77. Assuming that the distribution of XYZ stock returns is a population, what is the
population variance?
A. 6.8%2
B. 7.7%2
C. 10.2%2
D. 80.2%2
78. Assuming that the distribution of XYZ stock returns is a population, what is the
population standard deviation?
A. 5.02%
B. 8.96%
C. 46.22%
D. 20.22%
79. Which of the following is least likely an example of a discrete random variable?
A. The number of stocks a person owns.
B. The time spent by a portfolio manager with a client.
C. The number of days it rains in a month in Lagos.
D. The number of visits someone makes to the Stock Exchange.
80. Which of the following is least likely a condition of a binomial experiment?
A. There are only two trials.
B. The trials are independent.
C. If p is the probability of success, and q is the probability of failure, then
p + q = 1
D. There are only two possible outcomes.
81. What is the future value of N250 in the next 3 years if an interest rate of 10% per
annum is applicable?
A. N233.75
B. N332.75
C. N323.57
D. N357.23
82. The price of a commodity, which was N500 in year 2005, moved to N655 in year
2010. If year 2005 is the base year, what is the price relative?
A. 31%
B. 100%
C. 131%
D. 150%
83. A useful system for reducing sampling costs and dealing with the challenge of lack of
satisfactory sampling frame is ____________
A. Systematic sampling technique.
B. Stratified sampling technique.
C. Cluster sampling technique.
D. Quota sampling technique.
84. Regular change of quantity, on a monthly or weekly basis, is referred to as _______
A. Trend.
B. Cyclic variation.
C. Seasonal variation.
D. Random variation.
85. A firm manager wishes to purchase a new machine in the next 3 years. He sets aside
N1,000 per annum into an account at the end of each year. After 3 years, at an
interest rate of 10% per annum, how much is the sinking fund worth?
A. N350
B. N1,300
C. N2,315
D. N3,310
86. Which of the following statements is incorrect with the following regression equation:
y = a + bx?
A. "y" is the dependent variable.
B. "a" is what the outcome is expected to be when the independent variable is zero.
C. "x" is the slope of the equation.
D. The error term can be measured as the difference between an actual outcome
and the "y" value for that specific situation.
⎡ 4 1 2⎤
⎥
⎢
87. Find the determinant of the following Matrix; B= 5 4 3
⎥
⎢
⎢⎣9 6 8 ⎥⎦
A.
B.
C.
D.
12
20
31
42
88. In hypothesis testing, Type I error is defined by one or more of the following
statements:
I.
II.
III.
IV.
Acceptance of a wrong hypothesis.
Acceptance of Ho when HI is true.
Rejection of Ho when Ho is true.
Rejection of a correct hypothesis.
A.
B.
C.
D.
I, II and III only.
II and IV only.
I and IV only.
II and III only.
89. On average, there is a 60% chance that the economy will expand in any given year.
What is the expected number of years that the economy is expected to expand in a
10 year period?
A. Greater than six years.
B. Less than six years.
C. Six years.
D. Insufficient information.
90. The correlation coefficient that indicates the weakest linear relationship between
variables is:
A. -0.95
B. -0.22
C. 0.15
D. 0.80
91. What is the slope of the following equation of a straight line: y = 5 + 2x ?
A. 0.4
B. 2
C. 2.5
D. 5
92. You are given the following regression equation:
Growth in Sales = 6.253 + 0.7 GDP
Which of the following statements would be false?
A. Growth rate in sales is the dependent variable.
B. If there is a recession, sales would only grow at 6.253%
C. The GDP rate is the independent variable.
D. The regression coefficient is 0.7
93. What is the present value of the following series at 10%?
Year
Cash flow
A.
B.
C.
D.
0
- 2,000
1
800
2
600
3
700
4
500
N90
N200
N300
N600
94. How long will it take to double your original investment in a bond mutual fund if the
expected rate of return is 8% compounded semi-annually?
A. 8.8 years
B. 9 years
C. 12.5 years
D. 17.7 years
95. Which of the following test statistics should be used when conducting a hypothesis
test for the mean of a population that is normally distributed and no other
information is provided?
A. Z-distribution.
B. Chi-square.
C. T-distribution.
D. F-distribition.
96.
Ayo Johnson invested N400 at the beginning of each of the last 12 months in the
shares of a mutual fund that paid no dividends. Which method will he correctly
choose in order to calculate his average price per share from the monthly share
prices?
A.
Arithmetic mean.
B.
Harmonic mean.
C.
Geometric mean.
D.
Variance.
97.
For a log normal distribution, the:
A.
Mean equals the median.
B.
Probability of a negative outcome is zero.
C.
Probability of a positive outcome is 50%
D.
None of the above.
98.
How
A.
B.
C.
D.
99.
Maina Limited is considering the purchase of a new material handling system for a
cost of N15 million. This system is expected to generate a positive cash flow of N1.8
million per year in perpetuity. What is the NPV of the proposed investment if the
appropriate discount rate is 10.5%?
A.
N2,142,857
B.
N13,200,000
C.
N17,142,857
D.
None of the above.
much must be invested today at 0% to have N100 in three years?
N77.75
N100.00
N126.000
None of the above.
100. Which of the following represents the correct order of some steps required to solve
a linear programming problem?
A.
Define variables>Establish constraints>Establish objectives function>
Determine optimal product mix.
B.
Define variables>Establish objective function>Establish constraints>
Determine optimal product mix.
C.
Establish constraints>Define variables>Establish objective function>
Determine optimal product mix.
D.
Establish objective function>Define variables>Establish constraints>
Determine optimal product mix.
Total = 100 marks