CIS March 2011 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 - 20)
1.
In acquiring the net assets of RST Enterprises, ABC Nig. Ltd. issues 500,000 of its
ordinary shares of N1.00 each. RST Enterprises has an overdraft of N125,000, but no
long term debt.
What is the impact of this transaction on the gearing and the net cash position of
ABC Nig. Ltd?
A.
B.
C.
D.
2.
GEARING
Decreases
Increases
Increases
Decreases
NET CASH
Decreases
Increases
Decreases
No effects
The following figures are extracted from the balance sheets of two companies:
Slow Ltd and Steady Ltd.
Slow Ltd
Steady Ltd
N’000
N’000
Ordinary Shares:
480
540
10% Debentures:
360
90
Profit and Loss Account:
180
390
In times of falling profits, which provider of finance would experience the greatest
degree of risk?
A. Debenture holders of Slow Ltd.
B. Ordinary shareholders of Slow Ltd.
C. Debentures holders of Steady Ltd.
D. Ordinary shareholders of Steady Ltd.
3.
Which of the following underlisted options give the correct purpose of the cash flow
statement?
I. To provide information about cash receipts and cash payments over a given
period.
II. To show the cash available at all times.
III. To indicate the pattern of cash generation and utilization.
IV. To show that the profit of an enterprise is related to its liquidity.
A.
B.
C.
D.
I, II and III
I, II and IV
I, III and IV
I only
4.
Which of the following ratios is suitable to determine the liquidity of a firm?
A. Gross profit ratio.
B. Dividend yield.
C. Quick ratio.
D. Turnover ratio.
5.
In the Statement of Financial Position of a quoted company, dividend proposed and
approved is shown as?
A. Current asset.
B. Fixed asset.
C. Current liability.
D. Long term liability.
6.
A method of stock pricing by which issues are priced at the cost of the oldest batch
in stock until all units of the batch have been issued, before the next oldest is used
and so on is known as?
A. Last-in-first-out (LIFO).
B. Specific or unit Price.
C. First-in-first-out (FIFO).
D. Replacement price.
7.
The International Accounting Standards Board (IASB)’s framework for the
preparation and presentation of financial statements gives the following as
qualitative characteristics that make financial information reliable:
A. Prudence, comparability and accruals.
B. Faithful representation, neutrality and prudence.
C. Neutrality, accruals and going-concern.
D. Prudence, comparability and going-concern.
8.
In times of rising prices, what effect does the use of historical cost concept have on
the values of a company’s assets and profit?
A. Assets values are understated and profit overstated.
B. Assets values are overstated and profit understated.
C. Assets values and profit are both overstated.
D. Assets values and profit are both understated.
9.
Which of the following
A. Closing net assets
B. Closing net assets
C. Closing net assets
D. Closing net assets
calculates a trader’s net profit for a period?
+ drawings – capital introduced – opening net assets.
– drawings – capital introduced - opening net assets.
– drawings + capital introduced – opening net assets.
+ drawings + capital introduced – opening net assets.
10. Which of the following items would appear in a company’s cash flow statement?
I. Proceeds of issues of shares.
II. Dividends received.
III. Proposed dividends.
IV. Surplus on revaluation of non–current assets.
A.
B.
C.
D.
I and IV
I and III
II and III
I and II
11. The accounts clerk of a company made the following mistakes:
I. Discounts allowed N9,600 was credited to the discounts received account.
II. Discount received N7,400 was debited to the discount allowed account.
Which of the following journal entries will correct the errors?
Dr
Cr
A. Discount allowed:
9,600
Discount received:
7,400
Suspense account:
2,200
B.
Discount allowed:
Discount received:
Suspense account:
19,200
C.
Discount allowed
Discount received
Suspense account
2,200
2,200
D. Discount allowed
Discount received
17,000
14,800
4,400
4,400
17,000
12. Which of the following items should appear in a company’s statement of changes in
equity?
I. Profit for the financial year.
II. Surplus on revaluation of non-current assets.
III. Amortization of capitalized development costs.
A.
B.
C.
D.
I and II only
II and III only
I and III only
I, II and III
13. According to IAS2 on Inventories, which of the following costs should be included in
valuing the inventories of a manufacturing company?
I. General administrative overheads.
II. Carriage outwards.
III. Carriage inwards.
IV. Depreciation of factory plant and machinery.
A.
B.
C.
D.
I and II
I and III
I and IV
II and IV
14. Which of the following are acceptable methods of depreciating non-current assets?
I. Sum-of-the-years-digits method.
II. Units of production method.
III. Straight line method.
A.
B.
C.
D.
I and II only
I and III only
II and III only
I, II and III
15. The recognition of an expense 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.
16. Which of the following concepts is applied when revenues are recognised when they
are earned, usually at the date of a transaction with a third party and against such
revenues are charged the costs of earning the revenue which has been recognised?
A. Prudence.
B. Consistency.
C. Going-concern.
D. Accrual.
17. The primary purpose of financial accounting and reporting is:
A. Advisory function.
B. Stewardship function.
C. Decision-making function.
D. Managerial function.
18. A plant had cost N5,000 to place it in its present location and condition. However, a
new model had been put in production and it is estimated that it can only be sold for
N4,500. Completion costs will be N450 and selling and distribution costs (including
sales commission directly related will be N640. Calculate the Net Realizable Value.
A. 4310
B. 3401
C. 4301
D. 3410
19. Which of the following statements is not correct?
A. The value of an item of property, plant and equipment could be re-valued
upwards to its fair value.
B. Items of property plant and equipment should be depreciated over their
estimated useful lives.
C. An investment properly should always be measured initially at cost.
D. Under no condition should research and development cost be recognized as an
asset in the financial statement.
20. A company whose accounting year ends on the 31st of December, issued bonus
shares to its shareholder on the 1st of November 2010. The accountant wishes to
compute the company’s EPS at year end. Which of the following statements is
correct?
A. The bonus issue would have no effect in the computation of EPS.
B. The bonus issue would only have effect in the following accounting year.
C. The bonus issue would be pro-rated on time basis in computing the weighted
average number of ordinary shares outstanding at year end.
D. The bonus issue would be treated as if it was issued on the first of January 2010
in computing the weighted average number of ordinary shares outstanding at
year end.
Economics and Financial Markets (21 - 40)
21. A major feature of the economic perspective is:
A. Equating rational self-interest with selfishness.
B. Comparing marginal benefits with marginal costs.
C. The validity of normative economics for decision making.
D. The recognition of the abundance of economic resources.
22. 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 elastic.
23. If you know that total fixed cost is N100, total variable cost is N300 and total product
is 4 units, then:
A. Marginal cost is N50.
B. Average fixed cost is N45.
C. Average total cost is N100.
D. Average variable cost is N80.
24. The demand curve a monopolistically competitive firm faces is:
A. Perfectly elastic.
B. Perfectly inelastic.
C. Highly, but not perfectly inelastic.
D. Highly, but not perfectly elastic.
25. The price paid for a natural resource that is completely fixed in supply is:
A. Profit.
B. Interest.
C. Rent.
D. A risk payment.
26. The part of after tax income which is not consumed is defined as:
A. Saving.
B. Capital investment.
C. Wages and salaries.
D. Nondurable goods expenditure.
27. GDP in an economy is N3,452 billion. Consumer expenditures are N2,343 billion,
government purchases are N865 billion, and gross investment is N379 billion,Net
exports are:
A. N93 billion.
B. N123 billion.
C. N45 billion.
D. N135 billion.
28. If the real output of an economy were to increase from N2,000 billion to 2,100 billion
in 1 year, the rate of growth of real output during that year would be:
A. 0.5%
B. 5%
C. 10%
D. 50%
29. If a business man could buy N25 million for $100 million, the rate of exchange for
the Naira would be:
A. $40
B. $25
C. $4
D. $0.25
30. The most important function of the Central Bank in Nigeria is:
A. Issuing currency.
B. Controlling the money supply.
C. Supervising commercial banks.
D. Lending money to banks and thrifts.
31. Which is one of the four phases of an idealized business cycle?
A. Inflation.
B. Recession.
C. Unemployment.
D. Seasonal variation.
32. If a person’s nominal income increases by 8% while the price level increases by
10%, the person’s real income:
A. Increases by 2%
B. Increases by 18%
C. Decreases by 18%
D. Decreases by 2%
33. Which of the following is likely to be affected by changes in the rate of interest most?
A. Consumer spending.
B. Investment spending.
C. The spending of the federal government.
D. The exports of the economy.
34. The economy is experiencing inflation and the Central Bank decides to pursue a tight
monetary policy. Which set of actions by the Central Bank would be most consistent
with this policy?
A. Buying government securities and lowering the discount rate.
B. Buying government securities and lowering the reserve ratio.
C. Selling government securities and raising the discount rate.
D. Selling government securities and lowering the discount rate.
35. 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.
36. The type of unemployment that is characterized by a mismatch between skills
possessed by people looking for work and currently available job is referred to as:
A. Structural unemployment.
B. Cyclical unemployment.
C. Frictional unemployment.
D. Regional unemployment.
37. According to the Keynesian view of the business cycle, an appropriate response to
recession would be:
A. A decrease in the money supply.
B. An increase in taxes.
C. An increase in government purchases.
D. A decrease in transfer payments.
38. A decrease in reserve requirements causes:
A. The money base to increase.
B. The monetary base to decrease.
C. The money multiplier to increase.
D. The money multiplier to decrease.
39. The reason for the law of demand can best be explained in terms of:
A. Supply.
B. Complementary goods.
C. The rationing function of prices.
D. Diminishing marginal utility.
40. In which of the following market models is the individual seller of a product a price
taker?
A. Perfect competition.
B. Pure monopoly.
C. Monopolistic competition.
D. Oligopoly.
Quantitative Analysis and Statistics (41 - 60)
41. A bag contains six oranges, twelve apples and twenty-two mangoes.
If a fruit is chosen at random, what is the probability that the fruit will be either an
orange or an apple?
A. 0.54
B. 0.60
C. 0.45
D. 0.35
42. Mr. Alajeseku deposited N25,000 in a savings Account at ABC Micro-finance Bank. He
was offered a simple interest rate of 12% per annum by his Bank. How long will it
take the account to earn N16,500 interest?
A. 4 years.
B. 5 ½ years.
C. 6 years.
D. 3 ½ years.
43. The particulars regarding the daily wages of skilled workers of two firms A and B in
the same industry are as follows:
Number of workers
Average daily payment (N’000)
Firm A
600
1.75
Firm B
500
1.86
Calculate the average daily wage for the industry.
A. N1,000
B. N1,980
C. N1,680
D. N1,800
44. Which characteristic movement of time series would you associate with the current
global economic meltdown in the world?
A. Random variation.
B. Trend variation.
C. Cyclical variation.
D. Seasonal variation.
45. Johnson paid N1,275 for a shirt after enjoying a discount of 15%. What was the
original cost of the shirt?
A. N1,250
B. N1,350
C. N1,400
D. N1,500
46. In hypothesis testing, Type I error is defined by one or more of the following
statements:
I. Acceptance of a wrong hypothesis.
II. Acceptance of Ho when HI is true.
III. Rejection of Ho when Ho is true.
IV. 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
47. The ratio of the increase of y between any two points on a line to the increase of x
between the same two points is called:
A. Integral of y with respect to x.
B. Intercept on the line.
C. Slope of the line.
D. Equation of line y = a + bx.
48. The condition under which two matrices A and B can be multiplied is given by one
or more of the following statements:
I.
II.
III.
IV.
Matrices A and
The number of
The number of
The number of
A.
B.
C.
D.
II and III only
I only
I and IV only
I and III only
B must have the same order/dimension.
rows in A is equal to the number of rows in B.
columns in A must be the same as the number of rows in B.
rows in A must be the same as the number of columns in B.
49. Four firms submit tenders for two contracts each of which must go to different firms.
In how many ways can the contracts be allocated?
A. 12 ways.
B. 16 ways.
C. 8 ways.
D. 10 ways.
50. The current worth of an amount of money due to be received or paid in the future is
known as:
A. Future value.
B. Maturity value.
C. Present value.
D. Discount value.
51. Which of the following statements about linear programming (LP) is not true?
A. Every LP problem has a primal and a dual formulation.
B. The LP technique can be used to solve only maximization problems.
C. To use LP technique, all factors involved must have a linear relationship.
D. The shadow price of a binding constraint in an LP problem indicates the extra
contribution that would be gained from increasing the amount of scarce
resources by one unit.
52. Find the maximum value of the Revenue function: R =400Q - 4Q2
A. N5,000
B. N8,000
C. N10,000
D. N12,000
53. Find the future value of an investment having present value (PV) of the investment
as N10,500 with rate of interest of 8% payable quarterly for five (5) years.
A. N15,602.45
B. N20,735.32
C. N18,456.42
D. N12,448.19
54. Laspeyres and Paasche’s indices tend to overstate and understate the actual index
respectively. A compromise index is known as:
A. Relative index.
B. Weighted aggregative index.
C. Fisher’s ideal index.
D. Marshal edge worth index.
55. Given the following matrices:
3
X= 4
3
Y=
1
1
2
,
3
5
2
4
and
Z=
3
2
5
1
2
0
Which of the following operations are conformable for multiplication?
A. XY.
B. YZ .
C. ZX.
D. ZY.
56. One of the following is not a merit of personal interview as a method of data
collection:
A. Feedback is immediate.
B. Accuracy of information is high.
C. Lower cost of operation.
D. There is verbal contact with respondent.
57. Which of the following statements is correct?
A. When the value of one variable is related to the value of another, they are said
to be correlated.
B. Coefficient of correlation measures the degree of correlation between two
variables.
C. Coefficient of determination measures the extent to which movements in y are
associated with movements in x.
D. All of the above.
58. Which of the following test statistics should be used to determine whether there is a
significant difference between the observed and the expected frequencies obtained
from a distribution?
A. Normal test.
B. T-test.
C. X2 – test.
D. F – test.
59. The correlation coefficient that indicates the strongest linear relationship between
variables is:
A. -0.95
B. -0.22
C. 0.35
D. 0.80
60. In a company of 120 employees, 80 earn N250 and 40 earn N270 per hour per
employee. What is the mean earning per hour per employee?
A. N260.00
B. N256.67
C. N260.01
D. N256.66
Total = 60 marks
Financial Accounting and Financial Statement Analysis
Question 2
2(a) What are contingent liabilities? Briefly explain how a contingent liability should be
treated in the financial statements.
(2 marks)
2(b) A company recorded an increase of 20% in its return on equity in the last one year.
Give two possible explanations for this.
(2 marks)
Economics and Financial Markets
Question 3
3(a) Using expenditure approach, write in equation form, the Gross Domestic Product
(GDP) in terms of its components.
(1½ marks)
3(b) Briefly explain your understanding of “production function”.
(1½ marks)
Quantitative Analysis and Statistics
Question 4
Given the trend equation: Y = a + bx
Where:
a = 4.57
b = 0.86
x is time taken from 2002 (i.e. 2002 = 0)
Unit of Y = ‘000 tonnes
You are required to predict the expected sales of the year 2011.
(3 marks)
Financial Accounting and Financial Statement Analysis
Question 5
5(a) Given below is the most recent balance sheet of Alaye Nigeria Ltd:
ALAYE NIGERIA LTD
Balance Sheet As At 31st December, 2010
N'000
Non-current assets
Plant and Machinery
Furniture
Motor vehicles
Total non-current assets
120,000
100,000
136,000
356,000
Current assets
Stocks
Debtors
Prepayments
Bank balances
Total current assets
28,000
72,000
3,600
36,400
140,000
Total assets
496,000
Creditors: amounts falling due within one year
Creditors
Accruals
Total current liabilities
Total assets less current liabilities
Less Creditors: amounts falling due after more
than one year
5% Debentures
50,000
6,000
56,000
440,000
80,000
360,000
Ordinary Share Capital
6% Preference Share Capital
Reserves
Shareholders’ funds
200,000
120,000
40,000
360,000
You also have the following extracts from the company’s operating statements for the year
ended 31st December 2010.
Turnover
Cost of sales
Gross profit
Profit after tax
N’000
1,600,000
1,125,000
475,000
180,000
Requirements for question 5(a) above:
Compute the following ratios and interpret your results.
5(a1)
Current ratio.
(1 mark)
5(a2) Total gearing ratio.
(2 marks)
5(a3)
(2 marks)
Net asset turnover.
5(a4) Return on equity.
(2 marks)
5(b) Ratio analysis has been criticized as an aid to decisions making for several reasons.
List and discuss any 3 of these reasons.
(3 marks)
Economics and Financial Markets
Question 6
6(a) Show graphically how increase in taxes and subsidies might affect the supply of a
good.
(4 marks)
6(b) Suppose the National Assembly of the Federal Republic of Nigeria passes a law
granting a subsidy of N10 per litre on the price of petrol. What effect will the subsidy
have on the demand and supply of petrol? What will happen to the price of petrol
and the quantity? (Hint: use appropriate graph to illustrate your answer.
(6 marks)
Quantitative Analysis and Statistics
Question 7
The Financial Analyst of a firm has established the total cost function of producing x units
of a commodity as C = 6,000 + 300x while the unit price of the commodity is given by:
P = 900 – 0.5x.
7(a) Determine the revenue function for the firm.
(2 marks)
7(b) Determine the profit function for the firm.
(2 marks)
7(c) Obtain the production level that yields maximum profit and hence, the value
(in Naira) of the maximum profit.
(6 marks)