2011/25432
Accounting and Finance: Stage 3 Assessment item bank —Multiple-choice 1

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2 Accounting and Finance: Stage 3 Assessment item bank —Multiple-choice

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1 Which one of the following statements is incorrect ?
(a) Internal controls improve the reliability of accounting information.
(b) Internal controls prevent theft or waste of organisational resources.
(c) Internal controls ensure compliance with business policies and procedures.
(d) Internal controls provide independent verification of financial statements.
Answer: (d)
Unit 3A
Evaluating financial information for planning, coordinating, controlling and investing.
 internal audit and control
 purpose of internal control
 review of procedures and policies
 detection and correction of errors and deficiencies
 relationship to the external audit process
An external auditor has completed an audit of the financial statements of Prime Resources
Ltd. and intends to provide a going concern qualification. This means, in the auditor ’s opinion, the business:
(a) will not be able to continue trading beyond the next financial year.
(b) is not complying with all relevant accounting standards.
(c) has poor internal controls which may threaten the viability of the business.
(d) has excessive levels of debt and may not be able to repay creditors.
Answer: (a)
Unit 3B
The role and influence of governments and other bodies
 the role and function of external auditors
 protection of external users
 to perform an independent audit of the financial statements appointed by the shareholders and reappointed at the Annual General Meeting (AGM).
3 If net present value is zero, the project is earning a return equal to
(a) zero.
(b) the rate of inflation.
(c) the contribution margin.
(d) the cost of capital.
Answer: (d)
Unit 3A
Recording, processing and communicating financial information
 capital investment/budgeting techniques for capital expenditure, limited to calculations for
 discounted cash flows (net present value NPV ONLY)
 payback period.
Note: Application of GST is NOT required
3 Accounting and Finance: Stage 3 Assessment item bank —Multiple-choice

4 Which one of the following statements relating to margin of safety is true?
(a) T he margin of safety refers to an organisation’s normal level of activity.
(b) A small margin of safety indicates a poor liquidity position.
(c) A large margin of safety indicates lower risk.
(d) A low margin of safety suggests operational costs are increasing.
Answer: (c)
Unit 3A
Recording, processing and communicating financial information

Cost-Volume-Profit (CVP) processing for a single and multiproduct (maximum 3 products) business
 calculation of contribution margin
 calculation of contribution margin per unit
 calculation of weighted average contribution per unit
 calculation of margin of safety
 calculation of selling price, variable cost, fixed cost, profit or sales volume
 calculation of break-even point
 calculation of the effect on profit/loss of make or buy decisions
 calculation of the effect on profit/loss of closing a department/dropping a segment product decision calculation of the gain or loss on special order decisions
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5 Which of the following is an example of financial accounting?
(a) Producing general purpose financial reports used by external users.
(b) Producing reports and providing financial information used by internal users.
(c) Calculating the Net Present Value of a project.
(d) Calculating the payback period of a project.
Answer: (a)
Unit 3A
Financial systems and fundamental principles
 distinguish between management accounting and financial accounting
Which of the following is an example of a direct cost?
(a) Salary of a factory supervisor.
(b) Glue used to make tables.
(c) Raw materials used to make shoes.
(d) Rent of a business premises.
Answer: (c)
Unit 3A
Financial systems and fundamental principles
 the nature of cost concepts
 materials, labour and overheads
 cost behaviours: fixed, variable and mixed costs
 relationships to cost objects: direct and indirect costs
 treatment of costs: product and period
 time orientation of costs: past and future
4 Accounting and Finance: Stage 3 Assessment item bank —Multiple-choice

7 Which one of the following is a component of business planning?
(a) setting objectives
(b) implementing internal controls
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(c) preparing reports
(d) establishing pricing structures
Answer: (a)
Unit 3A
Evaluating financial information for planning, coordinating, controlling and investing
 importance of business planning including a consideration of
 goals, objectives and generic business strategies: cost leadership versus differentiation, strategic initiatives and performance management
 reduce costs and risks
Which one of the following statements in relation to cost accounting is false ?
(a) Cost accounting helps to determine the value of work in process and finished goods inventory.
(b) Cost accounting helps managers determine the appropriate price to set for products.
(c) Cost accounting uses the market place to set the price of products.
(d) Cost accounting assists in determining the profitability of producing a product.
Answer: (c)
Unit 3A
Financial systems and fundamental principles
 the nature of cost concepts
 materials, labour and overheads
 cost behaviours: fixed, variable and mixed costs
 relationships to cost objects: direct and indirect costs
 treatment of costs: product and period
 time orientation of costs: past and future
9 Which one of the following statements in relation to the payback method is correct?
(a) The payback method is greatly influenced by an organisation’s cost of capital.
(b) Projects with a shorter payback period are considered less risky than those with longer payback periods.
(c) The payback period for a project must exceed the required rate of return to be acceptable.
(d) All estimated net cash flows are included within the calculation of the payback period.
Answer: (b)
Unit 3A
Recording, processing and communicating financial information
 capital investment/budgeting techniques for capital expenditure, limited to calculations for
 discounted cash flows (net present value NPV ONLY)
 payback period.
Note: Application of GST is NOT required
Accounting and Finance: Stage 3 Assessment item bank —Multiple-choice 5

10 The purpose of cash budgets is to
(a) inform shareholders as to the movements of cash over a given period.
(b) inform stakeholders about expected movements in cash in a specified future period.
(c) assist managers to plan for the future and control expenditure.
(d) allow managers to make accurate allocation of costs to products and/or services.
Answer: (c)
Unit 3A
Recording, processing and communicating financial information
 preparation of cash budgets including debtors’ and creditors’ schedules (GST NOT included)
11 On average, investors would like to see a downward trend in which one of the following ratios?
(a) debtor’s collection
(b) price/earnings
(c) dividend yield
(d) inventory turnover
Answer: (a)
Unit 3A
Recording, processing and communicating financial information
 preparation of cash budgets including debtors’ and creditors’ schedules (GST NOT included)
Use the following information to answer questions 12
–15.
Lorelle Gare is the manager of ‘Hip Fashion’. She is concerned about the cash position of her business and has asked you to prepare a cash budget for the months of April and May 2010.
Information pertaining to ‘Hip Fashion’ is as follows:
March April May June
Cash sales ($)
Credit sales ($)
8,000
40,000
12,250
44,000
13,300
90,000
6,000
100,000
Credit purchases ($) 25,000 30,000 32,000 40,000
Operating expenses ($) 25,500 29,400 25,000 28,000







Additional information:

On average, 50% of credit sales are paid month after sale . in the month of sale , and 50% in the first
Equipment to the value of $8,000 will be purchased and paid for in May.
On 31 March 2010 the business has $14,100 in cash.
A motor vehicle will be sold in April. It is estimated the vehicle will be sold for $7,770 cash.
$1,200 in interest from investments is due to be received in May.
Depreciation expense in the month of April is estimated to be $3,200.
Operating expenses are paid for immediately.
Credit purchases are paid in the month following purchase.
6 Accounting and Finance: Stage 3 Assessment item bank —Multiple-choice

12 The estimated cash inflows for the month of April are
(a) $59,520.
(b) $62,020.
Answer: (b)
(c) $54,250.
(d) $76,120.
Unit 3A
Recording, processing and communicating financial information
 preparation of cash budgets including debtors’ and creditors’ schedules (GST NOT included)
13 The estimated cash inflows for the month of May are
(a) $81,500.
(b) $103,300.
Answer: (a)
(c) $104,500.
(d) $80,300.
Unit 3A
Recording, processing and communicating financial information
 preparation of cash budgets including debtors’ and creditors’ schedules (GST NOT included)
14 The estimated cash outflows for the month of April are
(a) $57,600
(b) $59,400.
(c) $62,400.
(d) $54,400.
Answer: (d)
Unit 3A
Recording, processing and communicating financial information
 preparation of cash budgets including debtors’ and creditors’ schedules (GST NOT included)
15 The estimated cash outflows for the month of May are
(a) $63,000.
(b) $65,000.
(c) $55,000.
(d) $64,200.
Answer: (a)
Unit 3A
Recording, processing and communicating financial information
 preparation of cash budgets including debtors’ and creditors’ schedules (GST NOT included)
Accounting and Finance: Stage 3 Assessment item bank —Multiple-choice 7