CHARTERED INSTITUTE OF STOCKBROKERS
March 2015 Professional Examination Level 1
EXAMINATION PAPER 1.1:
Financial Accounting and Financial Statement Analysis
Economics and Financial Markets
Quantitative Analysis and Statistics
Financial Accounting and Financial Statement Analysis (1 - 34)
1.
Which of the following best explains what is meant by 'capital expenditure'?
Capital expenditure is expenditure ______________
A. On non-current assets, including repairs and maintenance.
B. On expensive assets.
C. Relating to the acquisition or improvement of non-current assets.
D. Relating to the issue of share capital.
2.
Which of the following statements is (are) true?
I. A debit entry in the cashbook will increase an overdraft.
II. A debit entry in the cashbook will increase cash balance.
A.
B.
C.
D.
Both statements are true.
Both statements are false.
Statement I is true while statement II is false.
Statement I is false while statement II is true.
3.
If the owner of a business takes goods from inventory for his own personal use, the
accounting concept to be considered is the ____________
A. Prudence concept.
B. Entity concept.
C. Capitalization concept.
D. Money measurement concept.
4.
During the year, N4,000 was paid to the electricity board. At the beginning of the
year, N1,000 was owed, and at the end of the year N1,200 was owed?
What is the charge for electricity in the year's income statement?
A. N3,000
B. N4,000
C. N4,200
D. N5,200
5.
Which one of the following statements is true?
A. Bad debts are an example of a prepayment.
B. Prepayments are current liabilities.
C. Prepayments decrease the profit in the income statement.
D. Prepayments are included in current assets in the statement of financial position.
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6.
A business buys a machine for N15,000. The depreciation policy for machinery is
15% pa reducing balance. What is the net book value of the machine after two years
of use?
A. N10,500
B. N10,837
C. N11,175
D. N12,750
7.
Which of the following would not be included in intangible non-current assets in a
company's financial statements?
A. Development costs.
B. Patents.
C. Shares held in a supplier.
D. Goodwill.
8.
Allowances for receivables are an example of which accounting concept?
A. Accruals.
B. Consistency.
C. Matching.
D. Prudence.
9.
A trial balance contains the following:
Opening inventory
Closing inventory
Purchases
Purchases returned
Carriage inwards
Prompt payment discounts received
N
1,000
2,000
10,000
200
1,500
800
What is the cost of sales figure?
A. N8,800
B. N9,500
C. N10,300
D. N12,300
10. Which of the following methods of valuing inventory is (are) specifically not allowed
under IAS 2?
A. LIFO.
B. Average cost.
C. Replacement cost.
D. (A) and (C) above.
11. In a statement of financial position, capital plus profit less drawings must always
equal _____________
A. Non-current assets.
B. Current assets.
C. Net current assets.
D. Net assets.
12. When a trial balance was prepared, two ledger accounts were omitted:
Discounts received
Discounts allowed
N2,050
N2,500
To make a trial balance balance, a suspense account was opened. What was the
balance on the suspense account?
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A.
B.
C.
D.
Debit N450
Credit N450
Debit N4,550
Credit N4,550
13. The following information was realized when preparing bank reconciliation:
I. Cheques with a value of N1,050 have been sent to suppliers and correctly
entered in the cash book, but have not yet been presented for payment.
II. A cheque for N75 sent to a supplier has been incorrectly recorded in the cash
book as N57.
III. Before correction, the cash book has a balance of N10,500 credit.
IV. Bank charges of N175 have not been recorded in the cash book.
The balance of the cashbook after the correction is _____________
A. N10,307 overdrawn.
B. N10,343 overdrawn.
C. N10,657 overdrawn.
D. N10,693 overdrawn.
14. Revenue reserves are _____________
A. Accumulated and undistributed profits of a company.
B. Amounts which cannot be distributed as dividends.
C. Amounts set aside out of profits to replace revenue items.
D. Amounts set aside out of profits for a specific purpose.
15. In a set of company accounts, which of the following would normally increase
administration expenses?
A. Reduction in the allowance for receivables.
B. Depreciation of machinery in the factory.
C. Payment of the audit fee.
D. Payment of production director's salary.
16. In the operating profit note of a statement of cash flows, it is usual to find
adjustments for items not involving cash movement. Which one of the following
items might appear under such a heading?
A. The profit on disposal of non-current assets.
B. The accumulated depreciation on non-current assets.
C. The income statement charge for taxation.
D. The allowance for receivables.
17. During the year ended 31 October 2014, your organization made a gross profit of
N60,000, which represented a mark-up of 50%. Opening inventory was N12,000 and
closing inventory was N18,000. What is the rate of inventory turnover?
A. 4 times.
B. 6.7 times.
C. 7.3 times.
D. 8 times.
18. Which of the following is not a ratio which is used to explain how well the operations
of a business have been managed?
A. Asset turnover.
B. Profit margin.
C. Gearing.
D. Return on capital employed.
19. An increase in both receivables' and payables' payment periods could result in
_____________
A. An increase in working capital.
B. A decrease in working capital.
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C. An increase in current assets and current liabilities.
D. A decrease in current assets and current liabilities.
20. Which of the following statements concerning 'true and fair view' is correct?
A. True and fair has a precise definition which is universally accepted.
B. There can only be one true and fair view of a company's financial statements.
C. True and fair means the financial statements are correct.
D. True and fair is mainly determined by compliance with generally accepted
accounting practice.
21. Which of the following is an 'appropriation of profit' in a limited liability company?
A. Interest paid.
B. Dividend paid.
C. Directors' remuneration.
D. Retained profit.
22. Under most circumstances, in order to recognize revenue ______________
A. Cash must have been received.
B. The entity must expect to receive cash in the future.
C. The entity must have paid for all expenses incurred in generating the revenue.
D. The revenue must be realized or realizable, and earned.
23. Which one of the following is considered to be a key qualitative characteristic of
accounting?
A. Timeliness.
B. Materiality.
C. Understandability.
D. Comparability.
24. One purpose of accounting information is to help certain users assess how effectively
the managers are running the business and to make judgments about likely levels of
risk and return in the future.
Which one of the following user groups is most likely to use accounting information
for this purpose?
A. Employees.
B. Community representatives.
C. Owners.
D. Government.
Use the following information to answer questions 25 and 26:
Given a draft statement of financial position of XYZ Ltd at 31st March 2014 below:
N
Non-current assets
Current assets: Inventory
Receivables
Prepayments
Current liabilities: Payables
Bank overdraft (Note)
Long-term liability: Loan
5
N
450
65
110
30
205
30
50
80
125
575
(75)
500
Ordinary share capital
Income statement
400
100
500
Note: the bank overdraft first occurred on 30 September 2013.
25. What is the current ratio of the company?
A. 2.19:1
B. 6.83:1
C. 2.56:1
D. 0.39:1
26. What is the total gearing of the company?
A. 13%
B. 16%
C. 20%
D. 24%
27. Which of the following statements gives the best definition of the objective of
accounting?
A. To provide useful information to users.
B. To record, categorize and summarize financial transactions.
C. To calculate the taxation due to the government.
D. To calculate the amount of dividend to pay to shareholders.
28. Which of the following is not a category of financial statement ratios?
A. Financial leverage.
B. Liquidity.
C. Profitability.
D. Reliability.
29. If a firm has N100 in inventories, a current ratio equal to 1.2, and a quick ratio equal
to 1.1, what are the values of current assets, current liabilities and firm's Net
Working Capital respectively?
Current
Current
Net Working
Assets
Liabilities
Capital
A. N3,000
N2,500
N500
B. N4,500
N4,090
N410
C. N1,200
N1,000
N200
D. N3,050
N2,540
N510
30. Which of the following would be considered a “use” of cash for purposes of
constructing a statement of cash flows?
A. A decrease in accounts receivable.
B. An increase in accounts payable.
C. An increase in ordinary shares.
D. A decrease in bonds payable.
31. The following is an extract from the trial balance of Capstone Stores at December 31,
2014:
Debit
Credit
N
N
Sales
73,716
Returns
5,863
3,492
Discounts
871
1,267
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What is the figure to be shown in the trading account for net sales?
A. N66,586
B. N66,982
C. N67,853
D. N70,224
32. If a company had an issued share capital of N450,000, a share premium of N187,500
and a profit and loss balance of N25,000, what would be the total of the
shareholders' equity?
A. N637,500
B. N600,000
C. N612,500
D. N662,500
33. A book of prime entry is one in which ____________
A. The rules of double-entry bookkeeping do not apply.
B. Ledger accounts are maintained.
C. Transactions are entered prior to being recorded in the ledger account.
D. Subsidiary accounts are kept.
34. Which of the following is a liquidity ratio?
A. Quick ratio.
B. P/E-ratio.
C. Inventory turnover.
D. Equity multiplier.
Economics and Financial Markets (35 - 67)
35. The government uses ____________ to borrow for the short-term.
A. Warrants.
B. Global Depository Receipts (GDR).
C. Shares.
D. Treasury bills.
36. Economics is the study of _____________
A. Production technology.
B. Consumption decisions.
C. How society decides what, how, and for whom to produce.
D. The best way to run society.
37. In the mixed economy _____________
A. Economic problems are solved by the government and market.
B. Economic decisions are made by the private sector and free market.
C. Economic allocation is achieved by the invisible hand.
D. Economic questions are solved by government departments.
38. The opportunity cost of a good is _____________
A. The time lost in finding it.
B. The quantity of other goods sacrificed to get another unit of that good.
C. The expenditure on the good.
D. The loss of interest in using savings.
39. The equilibrium price clears the market; it is the price at which ___________
A. Everything is sold.
B. Buyers spend all their money.
C. Quantity demanded equals quantity supplied.
D. Excess demand is zero.
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40. If demand is ___________ then price cuts will __________ spending.
A. Inelastic, increase.
B. Elastic, increase.
C. Elastic, decrease.
D. None of the above.
41. Adding up the quantities demanded of a good by different people facing the same
price gives us the _______________
A. Supply curve.
B. Market demand curve.
C. Demand curve.
D. Market supply curve.
42. A production technique is technically efficient if _____________
A. Output is maximized.
B. Inputs are minimized.
C. There is no way to make a given output using less of one input and no more of
the other inputs.
D. Costs are minimized.
43. Decreasing returns to scale means that ___________ as ______________
A. Short run marginal costs rises, output rises.
B. Long run marginal cost rises, output rises.
C. Short run average cost rises, output rises.
D. Long run average cost rises, output rises.
44. A competitive firm’s demand curve is ____________
A. Horizontal.
B. Vertical.
C. Downward sloping.
D. Fairly elastic.
45. A monopolist is ______________
A. A profit maximizer.
B. A price maker.
C. A price taker.
D. (A) and (B) above.
46. A profit-maximizing firm will hire labour until __________ equals the ____________
A. Marginal revenue, marginal cost.
B. Long run marginal revenue, long run marginal cost.
C. Labour output ratio, capital output ratio.
D. Marginal cost of labour, marginal revenue product.
47. Involuntary unemployment exists if workers ______________
A. Will not work at the offered wage.
B. Would work at the going wage but cannot find jobs.
C. Will not work because the hours are anti-social.
D. Are not prepared to move house to get the job.
48. The key issues of macroeconomics are _____________
A. Unemployment.
B. Inflation.
C. Economic growth.
D. All of the above.
49. Leakages from the circular flow are ____________, ____________ and
____________
A. Investment, savings, government expenditure.
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B. Savings, taxes net of subsidies, imports.
C. Consumption, investment, government expenditure.
D. Consumption, taxes, imports.
50. In a macroeconomic model without foreign trade or a government, aggregate
demand is the sum of _____________
A. Personal saving and private investment.
B. Personal saving and personal consumption.
C. Personal consumption and private investment.
D. None of the above.
51. Money has 3 main functions, they are, _________, ____________ and
_______________
A. IOU, inflation hedge, store of value.
B. Medium of exchange, inflation hedge, store of value.
C. Medium of exchange, unit of account, IOU.
D. Medium of exchange, unit of account, store of value.
52. Financial markets that facilitate the flow of long-term funds with maturities of more
than one year are known as ______________
A. Money markets.
B. Capital markets.
C. Primary markets.
D. Secondary markets.
53. If I keep some money available in case I see a bargain, this is an example of
_____________
A. Asset demand for money.
B. Speculative demand for money.
C. Transactions demand for money.
D. Token demand for money.
54. A fall in investment demand can result from _____________
A. Higher interest rates.
B. Lower expected future profits.
C. More expensive capital goods.
D. All of the above.
55. If the central bank buys financial securities in the open market to increase the
monetary base, this is an example of ____________
A. Lender of last resort.
B. Financial intermediation.
C. Open market operations.
D. Financial regulation.
56. The classical model of macroeconomics assumes ____________
A. Wages and prices are sticky.
B. Wages and prices are flexible.
C. The economy may operate below full capacity.
D. The economy is always at full capacity.
57. If a person thinks they are better off after a 10% wage increase, and all prices have
risen 10%, then they are experiencing ___________
A. Inflation.
B. A supply shock.
C. Crowding out.
D. Inflation illusion.
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58. During periods of rising inflation and rising interest rates we expect the demand for
real cash to ____________
A. Rise.
B. Fall.
C. Not change.
D. Fluctuate.
59. The Phillips curve shows the trade-off between ____________ and ____________
A. The inflation rate, interest rates.
B. The inflation rate, the unemployment rate.
C. Interest rates, output.
D. Output, employment.
60. The abolition of income tax would probably ___________ the number of workers in
employment and __________ the equilibrium rate of unemployment.
A. Increase, reduce.
B. Increase, increase.
C. Reduce, increase.
D. Reduce, reduce.
61. International specialization takes place because of __________
A. Differences in technology.
B. Differences in factor endowments.
C. Scale economies.
D. All of the above.
62. Import substitution is the replacement of _____________ by domestic production
under the protection of ______________
A. Exports, subsidies.
B. Exports, patents.
C. Imports, high tariffs or import quotas.
D. Imports, subsidies.
63. A depreciation of a country’s currency will ____________ the competitiveness of the
domestic economy.
A. Increase.
B. Reduce.
C. Do nothing to.
D. All of the above.
64. Floating exchange rates are _________ in the short run.
A. Stable.
B. Predictable.
C. Volatile.
D. Depreciating.
65. Potential output can be increased by ___________ or by ______________
A. Increasing the use of labour, increasing the use of land.
B. Increasing the use of capital, increasing the use of labour.
C. Increasing the use of land, increasing the use of capital.
D. Increasing the use of all inputs, technical advances.
66. In the IS-LM model, a decrease in output would be the result of a(n)
________________
A. Decrease in taxes.
B. Increase in the money supply.
C. Decrease in money demand.
D. Increase in government purchases.
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67. The imposition of a tariff causes consumption to ___________ and imports to
____________
A. Rise, rise.
B. Fall, rise.
C. Fall, fall.
D. Rise, fall.
Quantitative Analysis and Statistics (68 - 100)
68. The method of investment appraisal which calculates that rate of discount which
makes net present value = 0 for any project, is called ______________
A. The internal rate of return.
B. The average rate of return.
C. The reducing balance method.
D. The payback period.
69. Differentiation refers to the process whereby we _______________
A. Calculate the area underneath a curve.
B. Calculate the intercept of a curve with the horizontal axis.
C. Calculate the gradient to a curve at any point on the curve.
D. Calculate the intercept of a curve with the vertical axis.
70. An
A.
B.
C.
D.
index number is used _______________
To measure changes in demand.
To measure changes in price.
To measure changes in a variable over time.
To measure changes in quantity.
Use the information below to answer questions 71 and 72:
You are given the following sample of numbers drawn from a population:
0, 1, 2, 3, 4
71. What is the variance?
A. 1.22
B. 1.58
C. 2.5
D. 10
72. What is the standard deviation?
A. 1.22
B. 1.58
C. 2.5
D. 10
73. What is the median of this set of numbers: 4, 6, 7, 9, 2000000?
A. 7.5
B. 6
C. 7
D. 4
74. What is the expected return of a portfolio of assets with the following information?
Asset class
Stock
Bonds
Treasury Bills
Return
22%
11%
8%
A. 14.65%
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Value
N40 million
N35 million
N25 million
B. 13.67%
C. 12.84%
D. 11%
Use the following information to answer questions 75 and 76:
If y = 48x – 2x2, where y = total revenue (N) and x = output.
75. At what output is total revenue a maximum?
A. 48
B. 4
C. 2
D. 12
76. What price will be charged for the output which maximizes total revenue in the
previous question?
A. N12
B. N24
C. N48
D. N4
77. What could a guaranteed promise of N10,000 payable in ten years time be sold for,
assuming the rate of interest was 4.5%?
A. N6,900.78
B. N3,000.00
C. N7,123.89
D. N6,439.28
78. Samples of scores are said to be independent when ______________
A. The experimenter does not know the purpose of the research.
B. They are gathered by different experimenters, each being unaware of the
characteristics of the other samples of scores.
C. There is no basis for pairing the data.
D. Their means have similar values.
79. A variable _____________
A. Is a term used to denote qualitative attributes only.
B. Is any characteristic of the unit of study.
C. Can consist of one value or category.
D. Is a characteristic or property consisting of a set of values or categories.
80. The mean, the median and the mode _____________
A. Are all measures of central tendency.
B. Are all applicable to continuous or scale data only.
C. Are all suitable equivalent measures of the average, irrespective of the
distribution.
D. Always have values that are very similar when calculated from the same data set.
81. Which of the following statements is true?
A. The standard deviation can take a negative value.
B. The variance and standard deviation are always appropriate descriptive measures
for any set of continuous or scale data.
C. The variance and standard deviation are measures of spread or dispersion.
D. If each of a set of scores is multiplied by a constant (say 2), the value of the
standard deviation increases fourfold.
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82. A bar chart is ____________
A. Used for displaying (for comparison) visual summaries of the distributions of the
same variable in different groups or conditions.
B. The same as a histogram.
C. Used for depicting the distribution of a continuous variable.
D. Used for comparing the distributions of different variables.
83. In multiple regression _____________
A. There are several dependent variables.
B. The purpose of the exercise is to predict values of the regressors from those of
the criterion.
C. There are several dependent variables and several independent variables.
D. There are several independent variables.
84. Which of the following will not be a relevant factor when using the payback method
of capital investment appraisal?
A. The timing of the first cash inflow.
B. The cost of the asset.
C. The cash flows generated by the asset up to the payback period.
D. The total cash flows generated by the asset.
85. A project would normally be undertaken if its net present value is _____________
A. Zero.
B. Negative.
C. Positive.
D. Exactly the same as the NPV of existing projects.
86. Why is the payback method often considered inferior to discounted cash flow in
capital investment appraisal?
A. It is more difficult to calculate.
B. It only takes into account the future income of a project.
C. It does not take account of the time value of money.
D. It does not calculate how long it will take to recoup the money invested.
87. In the case of an annuity, the investor _______________
A. Pays a regular fixed amount over a specified time period, then receives a lump
sum at the end of that time period.
B. Receives a lump sum and in return pays regular fixed amounts over a specified
time period.
C. Pays a lump sum and in return receives regular fixed amounts over a specified
time period.
D. Receives a regular fixed amount over a specified time period, then pays a lump
sum at the end of that time period.
88. The 50th percentile is also known as the _____________
A. Median.
B. Upper quartile.
C. Lower quartile.
D. Mode.
89. Data that can take only a limited number of different values is called
______________
A. Continuous data.
B. Discrete data.
C. Finite data.
D. Limited data.
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90. Which of the following is not a measure of central location?
A. Mean.
B. Median.
C. Mode.
D. Variance.
91. A survey of 120 business executives revealed the following results:
I. 80 Read the Financial Times.
II. 60 read the Economist.
III. 40 read both the Financial Times and the Economist.
If an executive is picked at random, what is the probability that he or she reads both
the Financial Times and the Economist?
A. 0.5
B. 0.333
C. 0.833
D. 0.656
92. If an executive is picked at random, what is the probability that he or she reads
either the Financial Times or the Economist?
A. 0.166
B. 0.500
C. 0.833
D. 1.000
93. Regression analysis ______________
A. Establishes a relationship between two variables.
B. Measures growth.
C. Measures the demand for a good.
D. Establishes cause and effect
94. In the equation of a straight line, Y = mX + c, if m is equal to zero then when
_____________
A. X increases Y remains constant.
B. Y increases X increases.
C. X increases Y decreases.
D. X increases Y increases.
95. Which of the following is not an assumption of linear programming?
A. Prices of factor inputs remain the same no matter how high the firm demand.
B. Constant returns to the variable factors of production.
C. Prices of products remain the same no matter how high the consumer demand.
D. Diminishing returns to the variable factors of production.
Use the following information to answer questions 96 and 97:
A company manufactures two products X and Y. Each product has to be processed in
three departments: welding, assembly and painting. Each unit of X spends 2 hours in
the welding department, 3 hours in assembly and 1 hour in painting.
The corresponding times for a unit of Y are 3, 2 and 1 hours respectively. The
employee hours available in a month are 1,500 for the welding department, 1,500 in
assembly and 550 in painting. The contribution to profits is N100 for product X and
N120 for product Y.
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96. What is the objective function (Z) to be maximized in this linear programming
problem (where Z is total profit in N)?
A. Z = 120X + 100Y
B. Z = 1500X + 1500Y
C. Z = 100X + 120Y
D. Z = 2X + 3Y
97. What is the equation of the labour constraint line for the welding department in this
linear programme?
A. 3X + 2Y = 1,500 hours.
B. 3X + 2Y = 550 hours.
C. 2X + 3Y = 550 hours.
D. 2X + 3Y = 1,500 hours.
98. If R2 is calculated to be 0.98 how confident would you be in using the line of best fit
for prediction?
A. The relationship is too weak to predict.
B. Very confident.
C. The relationship is random and thus cannot be predicted.
D. Not confident.
99. Under what conditions do the binomial and Poisson distributions give approximately
the same results?
A. When p is small and n is small.
B. When p is small and n is large.
C. When p and q are equal.
D. When p and q are equal and n is small.
100. How long would it take N800 to double in value if the interest rate were 4.2% per
compounded annually?
A. 14.5 years.
B. 16.8 years.
C. 12.4 years.
D. 15.3 years.
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