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REVISION QUESTIONS - Introduction to Finance and Accounting

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REVISION QUESTIONS - Introduction to Finance and Accounting

A2 BUS ACC&FIN - REVISION 2010

REVISION QUESTIONS Finance, Accounting & Investment Appraisal

    1. Give two examples of situations in which firms would use:

    a short-term

    b medium-term

    c long-term

    sources of finance

    2 Explain what is meant by 'working capital'.

    3 Give three functions of management accounting.

    4 State how each of the following groups might use a firm's accounts:

     a) trade unions

    b) shareholders

    c) suppliers

     d) potential investors

     e) rival companies.

5 Briefly explain the purpose of auditing accounts.

    6 What are the main problems involved in preparing a social audit? 7 State three benefits that the use of information technology has brought to accounting.

    8 Explain one advantage and one disadvantage to a firm of having large sums of cash for a long period of time.

    REVISION QUESTIONS - REVENUES, COSTS AND PROFITS.

    1. Why might a business initially receive low revenues from a product newly

    introduced to the market?

    2. In what circumstances might a company be able to charge high prices for a

    new product?

    3. For what reasons might a firm seek to maximise its sales revenue? 4. State two reasons why firms have to know the costs they incur in

    production.

    5. Distinguish, with the aid of examples, between fixed costs and variable

    costs.

    6. Give two examples of costs which may be classified as semi-variable. 7. What is meant by the term 'direct cost'?

    8. Explain the difference between gross profit and operating profit. 9. Give two reasons why profits are important to businesses.

     1)

     2)

    10. What is meant by the term 'profit'?

    11. Outline one advantage and one disadvantage to a company of

    deciding to lower the proportion of profits it distributes to its shareholders.

    i) Advantage _______________________________________

    ii) Disadvantage _______________________________________ 12. State two purposes for which a firm's profit might be used.

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A2 BUS ACC&FIN - REVISION 2010

    REVISION QUESTIONS - BREAK EVEN ANALYSIS

1. What is meant by the term break even point?

    2. State three reasons why a business might conduct a break even analysis 3. List four item of information necessary to construct a break even chart 4. How would you calculate the contribution made by each unit of

    production?

    5. Describe the relationship on a break even chart between FC and TC 6. Explain why the VC and TR lines commence at the origin of a break even

    chart

    7. What point on a break even chart actually illustrates break even output? 8. How would you show the amount of profit or loss made on a break even

    chart?

    9. Why might a business wish to calculate a margin of safety? 10. A business is currently producing 200,000 units of output annually, and

    its break even output is 120,000 units. What is its margin of safety? 11. What are the flaws with break even analysis as an effective management

    decision making technique?

    12. What are the positives of using break even analysis?

     REVISION QUESTIONS - CONTRIBUTION

1. Define the term 'contribution per unit'.

    2. Give three examples of a fixed cost

    3. What is the difference between contribution and profit?

    4. Distinguish between FC and VC and SVC

    5. Outline one advantage to companies of using contribution costing 6. Why might firms engage in price discrimination?

    7. What is the main use to which contribution statements are put? 8. State two disadvantages of using contribution costing

    9. How does contribution assist in decision making?

REVISION QUESTIONS - CASHFLOW MANAGEMENT

1. Why is cashflow management a vital business activity?

    2. What are the limitations of a cashflow forecast?

    3. Outline three actions managers might take to correct a cash shortage in

    the short term and long term

    4. How might a cash flow forecast be useful in evaluating whether or not to

    accept a large customer order?

    5. Why might a cash flow forecast give a false sense of security?

REVISION QUESTIONS - WORKING CAPITAL

1. What is meant by the liquidity cycle?

    2. Why might a shortage of working capital prevent a firm from growing? 3. What determines the length of the business process?

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A2 BUS ACC&FIN - REVISION 2010

    4. Why is it thought advisable for firms not to have too much working

    capital?

    5. How can a firm ensure that cash is collected efficiently? 6. What internal factors could affect a firms liquidity?

    7. List two measures that a firm can take to deal with a liquidity problem.

    Outline the problems that this might cause.

REVISION QUESTIONS - SOURCES OF FINANCE

1. What is meant by capital expenditure?

    2. What is the importance to firms of working capital?

    3. What is meant by retained profit?

    4. Outline two ways in which businesses can raise money from internal

    sources.

    5. Explain the term 'factoring'.

    6. Outline two sources of finance that can be used for long term business

    development

    7. What are the advantages and disadvantages of raising capital by selling

    shares.

REVISION QUESTIONS - PROFIT AND LOSS ACCOUNT

    1. Give two reasons why a bank would want to see a firm's profit and loss

    account.

    2. For what reasons should sales taxes such as VAT be excluded from a

    business's turnover figure.?

    3. List the elements necessary to calculate cost of sales

    4. Distinguish between Gross Profit and Net Profit

    5. What is Net Profit otherwise known as?

    6. What are bad debts? How do they differ from provision for bad debts? 7. State the function of the appropriation account. Is it equally important

    to all businesses?

    8. Give examples of exceptional and extraordinary items which might

    appear in a firm's profit and loss account.

    9. What is a consolidated profit and loss account?

    10. Give three examples of items that might appear in the notes to a profit

    and loss account.

REVISION QUESTIONS - BALANCE SHEETS

1. Define the term balance sheet.

    2. Distinguish between Fixed and Current Assets

    3. Explain why it is that the two parts of a balance sheet will always balance. 4. What are the main reasons for presenting a balance sheet in a vertical

    format?

    5. How would you calculate working capital in a balance sheet? 6. What are the differences between debentures and ordinary bank loans? 7. Explain what is meant by the term window dressing.

    8. Describe two types of shares issued by limited companies

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    9. What is the difference between an intangible and a tangible fixed asset? 10. State two items other than share capital you might find in the 'financed

    by' section of a plc.

REVISION QUESTIONS - RATIO ANALYSIS

    1. List four groups of people who may be interested in the results of a ratio

    analysis.

    2. State the key stages in conducting an analysis of company account using

    ratios.

    3. Briefly explain the difference between activity ratios and profitability

    ratios.

    4. Explain why the ROCE is regarded as one of the most important ratios. 5. Why might the managers of a company be pleased if its stock turnover

    ratio was falling?

    6. What might the debtors collection period tell you about the way in which

    a business controls its finances?

    7. Outline the difference between the current ratio and the acid test ratio. 8. Why might a small investor be particularly interested in the dividend

    yield ratio?

    9. Explain one reason why investors might treat the results of ratio analysis

    with caution.

REVISION QUESTIONS - USES AND LIMITATIONS OF ACCOUNTS

1. Explain why firms might keep accounting records.

    2. Why should an 'extra-ordinary' item generating profit not be included in

    a company's trading profit?

    3. When should a business treat 'debtors' as bad?

    4. Why are businesses sometimes tempted to be optimistic about their

    debtor's capacity to pay?

    5. Why is land seen as a non-depreciating asset?

    6. What is goodwill and why do users of accounts treat it with caution? 7. How should a business value its stock holding?

    8. Why is this method appropriate?

    9. Give three strengths and three weaknesses of ratio analysis.

REVISION QUESTIONS - REVENUE AND CAPITAL SPENDING

1. What is capital spending?

    2. What is revenue spending?

    3. State whether each of the following is revenue or capital spending:-

    a) purchasing stock for resale

    b) building a factory extension

    c) repairing the roof of a factory

    d) paying the wages of shop floor workers

    4. Explain the difference between straight line and declining balance

    depreciation.

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A2 BUS ACC&FIN - REVISION 2010

    5. True or false: straight-line depreciation charges more for depreciation in

    the early years of an asset's life than in the later years? 6. Will increasing the depreciation charge for a year increase or decrease

    the reported profit for that year?

    7. Why may it cause a problem if a firm underestimates the depreciation

    that should be charged to its accounts?

REVISION QUESTIONS - INVESTMENT APPRAISAL

    1. Distinguish between qualitative and quantitative investment appraisal 2. Why should forecast cash flow figures be treated with caution? 3. How useful is payback period as the sole method for making an

    investment decision?

    4. Briefly outline the circumstances which:

    a) Payback period might be the most important appraisal method for

    a firm

    b) ARR might be more important than payback for a firm. 5. How are criterion levels applied to investment appraisal? 6. Explain the purpose of discounting cash flows?

    7. Using qualitative analysis, would you prefer ?100 now, or ?105 in one

    year's time, at an interest rate of 10%?

    8. Using the same data, which option would you prefer if using quantitative

    analysis?

    9. What qualitative issues might a firm take into account when deciding

    whether to invest in a new fleet of lorries?

    10. Why is it important to ask for the source before accepting investment

    appraisal data?

REVISION QUESTIONS - BUDGETING

1. Explain the term 'zero based budgeting'.

    2. List three advantages budgeting brings to a company

    3. Why is it valuable to have a yardstick against which performance can be

    measured?

    4. Describe the types of budgets that Brompton are likely to have. 5. What are the advantages of zero-based budgeting systems? 6. How might a firm respond to an increasingly adverse variance in labour

    costs?

    7. Explain what is meant by a favourable cost variance

    8. Why is management by exception a useful time saving measure for

    management?

    9. Briefly explain how most companies actually set next year's budgets. 10. Why should budget holders have a say in the setting of their budgets?

REVISION QUESTIONS - COST CENTRES AND ALLOCATION

1. What is meant by a cost centre?

    2. What is meant by a profit centre?

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A2 BUS ACC&FIN - REVISION 2010

    3. What is the difference between a direct and an indirect cost? 4. Give three examples of :-

    a) direct costs

    b) indirect costs

    for a newsagents.

    5. Explain why Manchester United Plc might want to divide the business up

    into profit centres?

    6. Why might Brompton wish to do this? What benefits and drawbacks

    might this bring to the financial control of the college? 7. Outline two ways of allocating overheads

    8. Why is the method of allocating overheads important to a firm producing

    several products?

    9. Suggest one suitable way of allocating each of the following overheads.

    Explain your answer:-

    a) marketing

    b) power

    c) recruitment

REVISION QUESTIONS - INTEGRATED FINANCE

1. List three uses for Brompton’s company accounts.

    2. Why is profit important to business?

    3. What is the difference between profit and cash flow? 4. How can an understanding of contribution help a business? 5. List two methods of investment appraisal that Brompton could use. 6. Describe the differences between the two.

    7. Name an accounting ratio that measures liquidity.

    8. Why is liquidity vital to any business?

    9. What is an accounting system?

    10. What is the difference between revenue and capital expenditure? 11. List the two most likely sources of finance for a new business? 12. What is a venture capitalist and how might they help Brompton? 13. List and discuss two ways a Brompton might finance expansion 14. What does a cash flow forecast show?

    15. How can cash flow forecasts help a business?

    16. Identify and discuss two ways in which a firm can deal with a predicted

    future cash flow shortage.

    17. Distinguish between fixed and variable costs

    18. What is the margin of safety?

    19. What are the features of factoring debts?

    20. What might be an example of high quality profit and low quality profit?

    ________________________

    Now Get to know Brompton even

    better

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