CHARTERED INSTITUTE OF STOCKBROKERS
QUESTIONS
Examination Paper 1.1
Financial Accounting and Financial Statement Analysis
Economics and Financial Markets
Quantitative Analysis and Statistics
Professional Examination
March 2014
Level 1
SECTION A: MULTI CHOICE QUESTIONS
Financial Accounting and Financial Statement Analysis (1 - 34)
1.
Gross profit is ___________
A. Excess of sales over cost of goods sold.
B. Sales less purchases.
C. Cost of goods sold plus opening inventory.
D. Net profit less expenses of the period.
2.
Which of the following statements is correct?
A. Profit does not alter capital.
B. Profit reduces capital.
C. Capital can only come from profit.
D. Profit increases capital.
3.
Which of the following are personal accounts?
I.
II.
III.
IV.
Buildings.
Wages.
Accounts receivable.
Account payable.
A.
B.
C.
D.
I and IV only.
II and III only.
III and IV only.
II and IV only.
4.
___________ is a measure of how effectively the assets are used to generate
sales.
A. Inventory turnover.
B. Asset turnover.
C. Current ratio.
D. Asset profitability.
5.
If there is a present obligation as a result of an obligating event and a probable
outflow of resources based on a reliable estimate, then a company should
___________
A. Report in the following accounting period.
B. Make a provision.
C. Disclose a contingent liability.
D. None of the above.
6.
A share premium account of a company cannot be used to ___________
A. Write-off company formation expenses.
B. Pay dividends.
C. Write-off expenses and discounts on issue of shares.
D. Issue bonus shares.
7.
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.
8.
__________ occurs when poor control over working capital results in insufficient
liquid funds to meet the demand of creditors.
A. Undertrading.
B. Overtrading.
C. Capital rationing.
D. Fund deficiency.
9.
In IAS7 on statement of cashflow, ____________ activities involve the
acquisition and disposal of non-current assets and other investments not included
in cash equivalents.
A. Operating.
B. Investing.
C. Financing.
D. Acquisition.
Use the information below to answer questions 10 and 11:
The Duck Printing Co. had sales of N10 million, Operating Income of N3 million; Aftertax income of N1 million; assets of N8 million; Stockholders' equity of N5 million; and a
total debt of N4 million.
10. What is Duck's return on assets?
A. 37.5%
B. 12.5%
C. 30.0%
D. 25.0%
11. What is Duck's asset turnover?
A. 0.50x
B. 1.25x
C. 2.50x
D. 3.33x
12. Which of the following increases equity?
A. Share buy back.
B. Paying preference and ordinary dividends.
C. Buying in treasury shares.
D. Re-issuing treasury shares.
13. A high payout ratio indicates ___________
A. A firm is investing heavily in plant and equipment.
B. A firm has high current obligations.
C. The firm is probably in the mature phase of its life cycle and does not have
many growth opportunities available.
D. The firm is probably in Stage II of its life cycle.
14. Ratio analysis which compares a company to an industry is complicated because
__________
A. Industry data are generally not available.
B. The accounting policy of different companies may be dissimilar.
C. Large companies are diversified across several industries.
D. (B) and (C) above.
15. A/An _________ is a lease that transfers all the risk and rewards associated with
the ownership of the asset to the lessee.
A. Operating lease.
B. Finance lease.
C. Reward lease.
D. Ownership lease.
16. Which of the following statements about liquidity ratios is true?
A. The higher the current ratio, the more likely a firm is able to pay its shortterm obligations.
B. The lower the quick ratios relative to the current ratio, the safer a firm is in
terms of liquidity.
C. The ratio of net working capital to total assets always lies between 0 and 1.
D. Relatively high current ratios are usually a sign of efficient working capital
management.
17. Which of the following ratios gives information on the amount of profits
reinvested in the firm over the years?
A. Retained earnings/total assets.
B. Sales/total assets.
C. Debt/total assets.
D. Debt/equity.
18. What is the purpose of charging depreciation?
A. To apply the accounting concept of prudence.
B. To ensure funds are set aside for replacement of non-current asset.
C. To reflect the net book value of the non-current asset in the statement of
financial position.
D. To allocate the cost of the non-current asset over the accounting periods
expected to benefit.
19. A resource controlled by an entity as a result of past events from which future
economic benefits are expected to flow to the entity is ____________
A. Equity.
B. Asset.
C. Liability.
D. Statement of financial position.
20. Which of the following inventory valuation methods is not recognised by IAS 2?
A. Last-In, First-out.
B. First-In, First-out.
C. Weighted Average method.
D. None of the above.
21. 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.
22. A unit of owners hip of a company is known as ___________
A. Loan.
B. Share.
C. Debenture.
D. Equity.
23. Which of the following does not indicate high quality of earnings?
A. Earnings are stable.
B. Conservative accounting methods were used to calculate earnings.
C. Earnings are from financing activities.
D. The firm has no extraordinary income.
24. What is the effect of overstating the closing inventory on the net income? Net
income is __________
A. Overstated.
B. Understated.
C. Unaffected.
D. Irrelevant.
25. The ability of a business organization to access cash quickly and easily is known
as ___________
A. Profitability.
B. Liquidity.
C. Gearing.
D. All of the above.
26. Which of the following is not a purpose of cash flows statement?
A. To show the performance for the period.
B. To show the amount of cash invested in noncurrent assets.
C. To Assess entity’s ability to generate cash.
D. To show the total cash inflow for the period.
27. 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.
28. Using the information provided below, what is the current ratio of Elfrida Limited
for the relevant years?
Stock
Debtors
Cash
Payables
Accruals
Non-current assets
A.
B.
C.
D.
2010
2:1
0.5:1
2:1
1.5:1
2010
N
200,000
150,000
250,000
200,000
100,000
1,000,000
2009
N
100,000
150,000
150,000
200,000
50,000
800,000
2009
0.63:1
2:1
1.6:1
1.2:1
29. A company experiences a dramatic fall in its gross profit ratio. This could be the
result of ___________
A. An increase in competition in the company's main product market.
B. An increase in the incidence of bad debts.
C. An increase in overhead expenses.
D. An increase in demand for the company's products.
30. Under the terms of IAS 8, where the effect of a change in estimate is material to
the financial statements __________
A. The nature and monetary effect of the change on the financial statements
must be disclosed.
B. The change in estimate should be applied retrospectively.
C. The change in estimate should only be applied retrospectively where it is
deemed necessary to provide more reliable information.
D. The nature and monetary affect of the change on the financial statements
must be disclosed only where it is deemed necessary to provide more reliable
information.
31. A government grant of N4,500,000 to help meet the cost of wages and salaries
incurred during the year to train staff was treated as deferred income in error.
What journal entries are required to correct this error?
A. Debit deferred income, credit wages and salaries.
B. Debit wages and salaries, credit deferred income.
C. Debit bank, credit deferred income.
D. Debit bank, credit wages and salaries.
32. Which of the following characteristics least likely contributes to the reliability of
financial statements?
A. Substance over form.
B. Comparability.
C. Prudence.
D. Completeness.
33. 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.
34. Which of the following is not an intangible asset?
A. Franchise rights.
B. Patents.
C. Goodwill.
D. None of the above.
Economics and Financial Markets (35 - 67)
35. An
A.
B.
C.
D.
example of fiat money is __________
Gold.
Paper naira.
Coins.
Cowry.
36. What is the reaction of suppliers to an increase in the incomes of consumers?
A. Suppliers do not react, since income shifts the demand curve, not the supply
curve.
B. The supply curve shifts to the right.
C. The supply curve shifts to the left.
D. Quantity supplied increases.
37. If faced with recession, government should either raise its expenditure and/ or
lower taxes. This will result in the following except __________
A. Increases income.
B. Boosts investment.
C. Increases output.
D. Curtails consumption.
38. When inflation and the balance of payments have sufficiently improved, but
probably with recession looming, threatening rising unemployment and little or no
growth, government should adopt ___________
A. Expansionary fiscal policies.
B. Expansionary fiscal and monetary policies.
C. Contractionary fiscal and monetary policies.
D. Contractionary fiscal policy only.
39. What is the principle of comparative advantage?
A. One’s comparative advantage in production tends to increase the more goods
are produces.
B. a country should specialize in the production of a good if the opportunity
costs is lower than in the other country.
C. Countries benefit from self-sufficiency since they do not have to rely on
foreign produces.
D. People do what is most beneficial for themselves.
40. If the price of Pepsi decreases relative to the price of Coke and 7-up, the demand
for ___________
A. Coke will decrease.
B. 7-up will decrease.
C. Coke and 7-up will increase.
D. Coke and 7-up will decrease.
41. Which of the following is not one of the government macroeconomic policy
objectives?
A. High and stable economic growth.
B. Low unemployment.
C. Avoidance of balance of payment deficit.
D. High Exchange rate fluctuation.
42. Which of the following is chronologically correct?
A. Scarcity, choice, scale of preference and opportunity cost.
B. Scale of preference, choice, opportunity cost and scarcity.
C. Choice, opportunity cost, scarcity and scale of preference.
D. Opportunity cost, scale of preference, choice and scarcity.
43. The effect of speculations which traders make if they believe that price changes
are only temporary is called ___________
A. Stabilizing effect.
B. Destabilizing effect.
C. Fisher effect.
D. Random-walk effect.
44. Which of the following statements is an example that best describes the assertion
‘if the government cuts taxes, imports will rise’?
A. Normative statement.
B. Normative policy statement.
C. Positive statement.
D. Positive policy statement.
45. An
A.
B.
C.
D.
unanticipated rise in aggregate demand leads to ___________
A rise in both the price and output.
A rise in the price level but no change in output.
A rise in output but a fall in the price level.
A fall in both output and the price level.
46. Which of the following is true of the distribution of income?
A. The best distribution of income is determined by positive economic
considerations.
B. The most equitable distribution of income is the most efficient distribution.
C. Markets may be efficient even if the distribution of income is quite unequal.
D. Given the efficiency of markets, an economist can determine what the income
distribution should be.
47. Prices set by government above the equilibrium price is called ___________
A. Minimum price.
B. Maximum price.
C. Optimal price.
D. Peak loading price.
48. A line showing how much of a good people will demand at different levels of
income is called __________
A. Income consumption curve.
B. Demand consumption curve.
C. Engel curve.
D. Price consumption curve.
49. Comparative advantage ______________
A. Promotes self-sufficiency.
B. Is the basis on which mutually beneficial trades are made.
C. Encourages people to specialize in goods in which they have a high
opportunity cost.
D. Encourages people to trade for goods in which they have a low opportunity
cost.
50. Which of the following statements regarding the market economy is false?
A. The distribution of income is unequal.
B. Ability to pay is determined by one’s income.
C. High income individuals will always be able to outbid low-income individuals
for goods.
D. There is an incentive to supply resources to their most productive
employment to maximize income.
51. Which of the following contributes to national income?
A. The purchase of newly produced goods and services.
B. The purchase of financial assets, such as savings deposits in banks.
C. The purchase of a used real asset, such as a building erected in 1987.
D. The use of funds to repay debts.
52. The “exchange rate” is ___________
A. The rate at which Naira can be exchanged for goods.
B. The price of one currency in terms of another currency.
C. The relationship between the unemployment rate and inflation rate.
D. The relationship between the rate of economic growth and the inflation rate.
53. Saving is considered to be a leakage because ___________
A. It reduces the flow of spending by households to business.
B. It results in an increase in the economy’s level of income.
C. It cannot find its way back into the spending stream in any other form.
D. It necessarily has a negative effect on economic activity.
54. Which of the following is the larger component of aggregate demand?
A. Consumption.
B. Investment.
C. Government purchases.
D. Net exports.
55. An economic situation where people behave ‘rationally’ under perfect competition,
provided there are no externalities, can result in ___________
A. Pareto improvement.
B. Pareto optimality.
C. Social inefficiency.
D. Social justice.
56. Suppose the domestic supply and demand curves for commodity QX in country A
are given by the following set of equations:
Qs = -60+3p
QD= 390-2p
In the absence of international trade in QX, what will be the domestic price of
country A?
A. N66
B. N90
C. N45
D. N150
57. Public goods are widely opened to a problem called ____________
A. Free-rider problem.
B. Inefficiency problem.
C. Externalities problem.
D. Inadequate funding.
58. The demand curve for the pure monopoly is __________
A. Perfectly price elastic.
B. Perfectly price inelastic.
C. Down slopping.
D. Up sloping.
59. The law of diminishing returns may not hold if ____________
A. There is a change in the combination of factor inputs.
B. There is an increase in managerial input.
C. There is a change in technique of production.
D. There is an increase in the production function.
60. Restrictive monetary policy of the Central Bank of Nigeria (CBN) includes the
following except ___________
A. Sell government bonds.
B. Increase the reserve ratio.
C. Raise the discount rate.
D. Raise inflation rate.
61. The law of one price will not likely hold for __________
A. Tradable goods.
B. Non-tradable goods.
C. Tangible goods.
D. Non-tangible goods.
62. The CBN has been accused recently of engaging in ‘inconsistent triangle’ in its
policies. Which of the following is not an element of the triangle?
A. Free capital mobility.
B. Fixed exchange rate.
C. Floating exchange rate.
D. Monetary policy autonomy.
63. The models stipulating that productivity shocks come from technological progress
is called __________
A. Random walk theory.
B. Technology productivity theory.
C. Real business cycle theory.
D. Exogenous business cycle theory.
64. The natural rate of unemployment is determined by the equilibrium between
__________
A. Wage and price determination.
B. Wage-setting and price-setting relation.
C. Unemployment rate and wage-setting relation.
D. Labour productivity rate and price level.
65. If two products A and B, are complements then ___________
A. An increase in the price of A will decrease the demand of B.
B. An increase in the price of A will increase the demand of B.
C. An increase in the price of A will have no significant effect on the demand of
B.
D. A decrease in the price of A will decrease the demand of B.
66. If the sum of capital account and official reserve transactions is in surplus, the
current account must be ___________
A. In deficit.
B. In surplus.
C. Equal to zero.
D. Non-negative.
67. A permanent supply shock that shifts the supply curve to the right is most likely
to result in higher ___________
A. Prices.
B. Unemployment.
C. Output.
D. Real interest rate.
Quantitative Analysis and Statistics (68 - 100)
68. A feasible region in linear programming is the __________
A. Region that satisfies all the constraints simultaneously.
B. Area where the loss incurred for not going for the best.
C. Region where production continues unabated.
D. Region where profit is maximized.
69. Which of the following hypothesis is not for one–tailed test?
A. H1 : µ > 0
B. H1 : µ ≥ 0
C. H1 : µ < 0
D. H1 : µ ≠ 0
70. The demand function of producing a product is given by P =360 – x and the total
cost function is C = 120x – 2500. What is the output at which the system breaks
even?
A. 240
B. 250
C. 100
D. 140
71. The regression line that describes the relationship between advertisement
expenses (X) and sales revenue (Y) is given by Y=55,095 – 0.0137X (in N’000).
What is the sales revenue if N60,000 was spent on advertisement?
A. N54,273
B. N45,372
C. N64,723
D. N55,200
72. Which of the following test statistics should be used when conducting a
hypothesis test for the mean of a population whose variance is known and the
sample size is large?
A. F-distribution.
B. Chi-square.
C. Z-distribution.
D. T-distribution.
73. The chi-square (X2) test is used to test the hypothesis of which of the following?
A. Independence of observed and expected frequencies.
B. Two or more sample means difference.
C. Difference between two population means.
D. Non-sampling error between population proportions.
74. Which of the following is not a method of calculating the trend of a time series?
A. Moving average method.
B. Least squares method.
C. Least cost method.
D. Semi-average method.
75. The marks scored by three students in a statistics test are 20, 27 and 28. What is
the mean and variance?
A. 27; 4.33
B. 75; 12.67
C. 25; 12.67
D. 25; 38
76. Which of the following is true with respect to the nature of statistics?
A. Descriptive statistics is the process of summarizing large quantities of data.
B. Statistics refers to parameters that are specific to a population.
C. Statistical inference is a form of regression analysis.
D. Sample size should have no impact on the accuracy of statistical findings.
77. For
A.
B.
C.
D.
a normal distribution, the coefficient of skewness is ____________
1
–1
0
2
78. If the Mean of a Binomial distribution is 24, Standard deviation = 4, n, p, q
respectively are __________
A. 72, 1/3, 2/3
B. 60, 1/3, 2/3
C. 87, 1/4, 3/4
D. 90, 1/5, 4/5
79. The major reason why arithmetic mean is most widely used in practice is
because ___________
A. It is not seriously affected by extreme values.
B. It is not difficult to calculate.
C. Only one mean can exist in a set of data.
D. It uses all the values in the data for its computation.
80. Which one of the following statements is (are) not true of the Payback period of
Investment appraisal?
I. It uses cashflows, not profit.
II. It favours quickly return projects.
III. It considers the time value of money.
A.
B.
C.
D.
I and II only.
III only.
II only.
II and III only
81. What principal invested at 4 percent per annum Simple interest for 5 years will
amount to N120,000.00?
A. N100,000.00
B. N95,000.00
C. N110,000.00
D. N85,000.00
82. Which of the following statements sounds like a null hypothesis?
A. The coin is not fair.
B. There is a correlation in the population.
C. There is no difference between male and female incomes in the population.
D. The defendant is guilty.
83. Which of the following techniques yields a simple random sample?
A. Choosing volunteers from an introductory psychology class to participate
B. Listing the individuals by ethnic group and choosing a proportion from within
each ethnic group at random.
C. Numbering all the elements of a sampling frame and then using a random
number table to pick cases from the table.
D. Randomly selecting schools, and then sampling everyone within the school.
84. A company produces two items X and Y. Both items are produced in two
machines A and B. The total time available in each machine and the time required
for each product in each machine are given below:
Machine
X
Y
Time
Available
A
1
2
24
B
2
3
36
Which of the following set of linear equations clearly expresses this situation?
A.
x+2y≤24
3x+4y≤36
x≥0, y≥0
B.
x+2y≤24
2x+3y≤36
x≥0, y≥0
C.
x+24=24
2x+3y=36
x≥0, y≥0
D.
x+2y≤24
2x+3y≥36
x≥0, y≥0
85. __________ is the set of procedures used to explain or predict the values of a
dependent variable based on the values of one or more independent variables.
A. Regression analysis.
B. Regression coefficient.
C. Regression equation.
D. Regression line.
86. If a test was generally very easy, except for a few students who had very low
scores, then the distribution of scores would be ___________
A. Positively skewed.
B. Negatively skewed.
C. Not skewed at all.
D. Normal.
87. Which of the following statement(s) is/are true about Type I error in hypothesis
testing?
I.
II.
III.
IV.
Rejection of a correct hypothesis.
Acceptance of a wrong hypothesis.
Rejection of the Null hypothesis when the Null hypothesis is true.
Acceptance of Null hypothesis when the alternative hypothesis is true.
A.
B.
C.
D.
I and III only.
II and IV only.
I and IV only.
I and II only.
88. The two major assumptions in linear programming are __________ of the
objective function and _________ of the decision variables.
A. Linearity, non-negativity.
B. Objectivity, constraint.
C. Objectivity, linearity.
D. Linearity, objectivity.
89. Which of the following is a limitation of the expected value criterion for decisionmaking, as compared with other decision criteria or methods?
A. It is an averaging process.
B. It incorporates a range of possible scenarios.
C. It does not take account of the fact that circumstances may change.
D. The method takes no account of the decision-makers’ attitude to risk.
90. Which of the following measures of central tendency can be used for further
mathematical analysis?
I.
II.
III.
IV.
Mean.
Median.
Mode.
None of the above.
A.
B.
C.
D.
I only.
I and II only.
III only.
IV only.
91. The
A.
B.
C.
D.
derivative of the Total Cost function is known as ___________
Average cost.
Variable cost.
Marginal cost.
Deferential cost.
92. If the correlation between x and y is 0.9, which of the following is/are true?
A. There is a strong linear relationship between x and y.
B. Ninety per cent of the changes in y can be explained by the corresponding
changes in x.
C. The slope of the regression line of y on x is positive.
D. (A) and (C) above.
93. What are the derivatives of the following equations?
Y = 6x – x
A.
B.
C.
D.
and
Y = 2x5 +10x
6x1 ; 5x4 + 5
6x ; 5x4 +10
6 ; 10x4 + 10
–x ; 10x4 + 5
94. Which of the following is not one of the uses of an index number?
A. To deflate a value series in order to convert it into real physical terms
B. To compare student’s intelligence in various schools or countries.
C. To select the commodities sources.
D. To forecast by using series of the indices.
95. A firm is considering a project with a cash outlay of N1,000 now and 5 yearly
cash inflows of N500. What is he Net Present Value (NPV) at 10%?
A. N875.70
B. N559.40
C. N895.50
D. N560.00
96. The net present value (NPV) of a project is N3,000 when the discount rate is 5
per cent. Which of the following statements is/are correct on the basis of the
information given?
I. The initial investment in this project is N3,000.
II. If N3,000 were invested at 5 per cent, it would generate the cash flows of
this project.
III. If the discount rate were to increase to 7 per cent, the NPV would increase.
IV. The project is viable, compared with investing at 5 per cent.
A.
B.
C.
D.
I and II only.
II and IV only.
II and III only.
I and III only.
97. Which of the following correlation coefficient could be interpreted as very strong?
A. -0.9
B. 0.6
C. -0.6
D. 0.3
98. In the graphical method of obtaining the quartiles, which of the following
diagrams is used?
A. Bar chart.
B. Histogram.
C. Pie chart.
D. Ogive.
99. 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
100. Which of the following statements correctly describes the use of a regression line?
A. To determine if any x-values are outliers.
B. To determine if any y-values are outliers.
C. To determine if a change in x causes a change in y.
D. To estimate the change in y for a unit change in x.
Total = 100 marks
END OF PAPER