Multiple Choice Questions

Each correctly answered question is worth mark (Total 10 marks)

Please mark your answer by placing a circle around the letter next to your chosen
response on this exam paper
1.

The Corporations Act 2001 is primarily enforced by

a.
b.
c.
d.

2.

A disclosing entity is an entity that

a.
b.
c.
d.

3.

Economic Globalization
Competition for Resources
Climate Change
All the options are key drivers of business sustainability

The concept of the triple bottom line states that an entity is responsible for the
areas of:
a.
b.
c.
d.

5.

discloses the basis on which their financial reports are prepared

issues securities that are quoted on a stock market or made available
to the public via a prospectus
is exempt under the Corporations Act 2001 from applying the AASB
accounting standards
is involved in the accounting standard setting process

Which of the following is a key driver of business sustainability?

a.
b.
c.
d.

4.

the Financial Reporting Council.

the Australian Securities Exchange.
the Australian Securities and Investments Commission.
the Australian Accounting Standards Board.

economic, social and ethical performance.

economic, social and environmental performance.
economic, environmental and ethical performance.
social, environmental and ethical performance.

The payment of a liability:

a.
b.
c.
d.

decreases assets and liabilities.

decreases assets and equity.
increases assets and decreases liabilities.
decreases assets and increases liabilities.

6.

The common characteristic shared by all assets is:

a.
b.
c.
d.

7.

Under the Corporations Act a company's assets are to be classified according

to their nature or function. Which of the following classifications would not be
used for assets?
a.
b.
c.
d.

8.

Internally generated goodwill cannot be recognised

Goodwill can be revalued upwards
Goodwill must be tested for impairment at least annually
Goodwill is an unidentifiable intangible asset

If a legitimate expense is not accrued at the end of the accounting period, the
result will be an
a.
b.
c.
d.

10.

liquidity
marketability
physical characteristics
source

The statement concerning goodwill that is not true is:

a.
b.
c.
d.

9.

their tangible nature.

their long life.
their great monetary value.
their expected future economic benefits.

understatement in liabilities and an overstatement in profit.

overstatement in liabilities and an understatement in profit.
overstatement in assets and profit.
understatement in assets and profit.

Which of these will be recorded as income?

a.
b.
c.
d.

A loan is received from a bank

Money is collected from a customer owing from goods sold last week
A sale is made on credit
Additional capital is contributed by the owner

11.

Which of the following statements is true?

a.
b.
c.
d.

12.

In the current accounting period, expenses calculated on an accrual basis are

$100 000 and the cash paid for expenses shown in the statement of cash
flows is $80 000, therefore:
a.
b.
c.
d.

13.

inventory is being sold faster

it is taking longer to sell inventory
the inventory turnover ratio is too high
the inventory turnover ratio is too low

The current ratio is also known as the:

a.
b.
c.
d.

15.

expenses may have been paid for in advance in the previous period.
expenses may have been incurred in the current period that have not
been paid.
depreciation may have been charged in the income report.
all options are correct

A change in the inventory turnover period from 47 days to 51 days indicates:

a.
b.
c.
d.

14.

For an entity to survive, the net cash flow from operating activities
should be positive.
For an entity to survive, the net cash flow from investing activities
should be positive.
For an entity to survive, the net cash flow from financing activities
should be positive.
For an entity to survive, the net cash flow from operating activities
should be negative.

quick asset ratio

working capital ratio
cash flow ratio
capital structure ratio

Which of the following is a way that budgeting and its associated planning can
assist in decision making?
a.
b.
c.
d.

setting targets for managers

identifying resource constraints in the budget period
planning labour and other inputs
all the options are ways that budgeting and its associated planning can
assist in decision making

16.

Which of the following organisations would not prepare a capital expenditure

budget?
a.
b.
c.
d.

17.

Which of the following would be included in the operating budgets:

a.
b.
c.
d.

18.

total sales equals fixed costs plus profit

total sales equals total variable costs
total sales equals total costs
total sales equals total variable costs minus profit

Which of the following statements regarding CVP analysis is not true?

a.
b.
c.
d.

20.

the sales or fees budget and the operating expenses budgets

the sales or fees budget, the operating expenses budget and the
capital expenditure budget
the sales budget and the budgeted income statement
the sales budget and the cash budget

The break-even point is where:

a.
b.
c.
d.

19.

a service organisation
all the organisations would prepare a capital expenditure budget
a retail organisation
a manufacturing organisation

cost behaviour can be classified as fixed or variable

only fixed costs are assumed to behave in a linear manner across the
relevant range
unit price and cost data remain constant over the time period and the
relevant range
cost behaviour is linear

Entities with a higher proportion of fixed costs to variable costs, within their
cost structures, compared to entities with a lower proportion of fixed to
variable costs, are regarded as:
a.
b.
c.
d.

more risky
less risky
having a lower operating leverage
not different in risk

Short Answer/Practical Questions

Please provide responses to all of the following questions
Marks awarded for each answer are located next to the question

21.

(3 + 2 + 2 + 3 + 2 = 12 marks)

Joanne sells a single product, Fortune Crystals, at the local markets and over the
internet. Estimated data relating to 2013 is:
Annual sales
Selling price per crystal
Purchase price per crystal
Annual fixed marketing costs
Variable marketing costs per crystal
Annual fixed administration costs

2500 crystals
$30
$8
$2000
$3
$9500

REQUIRED:
a)

Calculate total fixed costs and unit contribution margin per crystal.

b)

Calculate the breakeven point in units for 2013.

c)

Calculate the number of crystals that Joanne would need to sell to make a
profit of $20 000 for the year.

d)

If Joanne can buy the Fortune Crystals for less than the current purchase
price will the breakeven point increase or decrease? Explain the reason
for your answer.

e)

State two assumptions underlying cost-volume-profit analysis.

22.

(11 + 3 = 14 marks)

Shamrock Ltd faces the choice of replacing some of its equipment immediately or
continuing with the old equipment for a further three years. The old equipment
needs constant maintenance, often breaks down and presents an environmental
problem. It is expected that the new equipment will be superceded in three years by
new technology and will have to be replaced. Its market value at that point is
estimated to be $60,000.
The estimates for the two alternatives are as follows:
Retain old equipment
Maintenance Cost
Additional cash flows
(Years 1-3)
Cost of training for handling
of
new equipment on
installation

$100 000 p.a.

Replace now
Initial cost $480 000
Nil
$90 000 p.a. due to
increase in capacity
$15 000

For new capital projects the required rate of return is set at 15%.
The old equipment has a current trade-in value of $3000.
REQUIRED:
a) Calculate the net present value for each of the two alternatives and make a
recommendation based on the results of your calculations. Ignore tax
considerations.
b) List three other considerations that should be taken into account in making a final
decision, besides the net present value calculation in part a).
Additional information:

Periods
1
2
3
4
5

Present Value of $1.00

11%
12%
0.901
0.893
0.812
0.797
0.731
0.712
0.659
0.636
0.593
0.567

15%
0.870
0.757
0.658
0.572
0.497

23.

(3 + 7 + 2 = 12 marks)

The following data has been estimated for Macquarie Machinery, who commenced
business on 1 August 2013.
Estimated total sales:
August
$55 000
September
$50 000
Cash sales are estimated to be 20% of total sales.

Debtors are expected to pay:

50% in the month of sale
48% in the month after the sale with the balance owing never
collected.

Estimated purchases:
August
September

$30 000
$36 000

All purchases are to be on credit and are to be paid for in the month following
the purchase.
Estimated operating expenses are:
- Freight outwards 15% of total sales, paid in cash.
- Office salaries, August $9000, Sept. $11 600, paid in cash.
- Depreciation of equipment 25% per annum on $250 000. (The equipment
was purchased on credit.)

Other information:
The owner contributed $85 000 cash to the business on August 1, 2013.
The owner intends withdrawing $3000 per month for private use.
The accountant of Macquarie Machinery estimates the firm will need a
minimum cash balance of $15 000 in order to maintain liquidity.

REQUIRED:
a)

Prepare a schedule of expected receipts from debtors for August and

September 2013.

b)

Prepare a cash budget for the two months ended 30 September 2013
showing the expected cash balance at the end of each month. (It is not
necessary to show a total column for the two months).

c)

On 30 September 2013 an installment of $100 000 will be due on the new

machinery. Will Macquarie Machinery be able to pay the installment?
Explain.

24.

(6 + 3 + 3 = 12 marks)

Helen owns three gift shops for which the following ratios have been prepared. The
shops are all situated in large shopping centres one in Castle Hill, one in Chatswood
and the other in Ryde.
Helens Gift Shops
Castle Hill
Chatswood
Ryde
Return on assets
Profit margin
Asset turnover

9%

6%

10%

2.6%

3.3%

8%

1.9 times

1.3 times

3.4 times

REQUIRED:
a.

In your own words explain the meaning of each of the three ratios listed.
(Do not just give the formula for the ratio).

b.

What do the ratio results reveal about the sections of the gift market each
shop is catering to?

c.

Which shop is the best performer? Explain why you have chosen a
particular measure from those above to reach this conclusion.