Accountant in Business (AB) (Answers to test-2) (Sep19-Aug20)

Answers to practice test-2:

Section A:
1. Internal audit staff (1 mark)
Internal audit staff have responsibility for ensuring systems and controls are
thoroughly reviewed. One off exercises such as surprise visits may be
undertaken alongside annual audit work.

2. False/True (2 marks)
If there are no barriers to movement of the workforce then PQR Co will need to
pay the going rate for the job (as the country has highly effective equal pay laws).
Therefore PQR Co will not necessarily pay lower wages than JKL Co.

However if PQR Co is seen by the workforce as not being committed to diversity

then it could well have problems employing some sections of the workforce.
Therefore PQR Co is exposed to a greater risk of skills shortages than JKL Co.

3. Systems audit (2 marks)

Tests on internal controls are designed to ensure that the system is working.
Therefore it is called a systems audit.

4. Indirect discrimination (1 mark)

Indirect discrimination occurs when something is fair in form, but discriminatory in
operation. Plans for children could be to the detriment of a woman, but not a
man. Therefore, it is regarded as indirect gender discrimination.

5. Wheel (2 marks)
The communication is from the centre outwards directly to each member of the
team which is a wheel pattern.

6. Person (2 marks)
Linh allows members of her team to work according to their own individual
interests. This is typical of the person culture.

7. Its acceptance of its responsibility to act in the public interest (2 marks)

A distinguishing mark of the accountancy profession is its acceptance of the
responsibility to act in the public interest. Accordingly, a professional accountant's
responsibility is not exclusively to satisfy the needs of an individual client or
employer, but also to consider the wider public interest.

8. Price elastic (1 mark)

The price elasticity is calculated as 12/10 = 1.2. Since this is greater than 1,
demand for the product is price elastic (note - since price and quality move in
Accountant in Business (AB) (Answers to test-2) (Sep19-Aug20)

opposite directions, this should really be -1.2, but the minus sign is usually
ignored).

9. Prepare a list of all the tasks that have to be performed

Decide on the relative importance of each task and prioritise them (2 marks)
The first two actions Charles should take are to prepare a list of all the tasks and
then prioritise them. Following this review Charles may then go on to perform one
or both of the other actions particularly if time pressure is severe.
10. Increasing the depreciation of an asset in order that it may be purchased
later from the company for less than it is worth (2 marks)
Increasing the depreciation of an asset will reduce profit. This will not be
reversed when the asset is sold as it will be bought from the company for less
than it is worth. Other options will vice versa increase profit figure.

11. A decision support system (2 marks)

A key phrase here is ‘problem-solving abilities’. It shows that the system being
used by Efon to support business decisions.

12. Appropriate procedures for interviewing, recruitment and appraisal (1 mark)

Segregation of duties such as cheque signing and payment authorisation
Controls for prevention must be operated BEFORE the event - care over
recruitment, etc. will help prevent dishonesty, whilst appraisal may help prevent
demotivation. Segregation of duties as suggested will mean that fraud can only
happen with collusion. Checking of work already performed by other staff helps to
detect the fraud, but could not prevent it.

13. A human rights group has recently exposed that one of the company's main
suppliers is using child labour and is paying its staff very low wages.
The health and safety inspector feels that the fire exits from its factory are
very poorly identified and could make the factory unsafe in the event of a
fire (2 marks)
A company has a duty to provide its staff with a healthy and safe workplace. If
there are concerns about the safety of a factory this questions whether the
company is fulfilling its duty to its staff.
The human rights group has exposed that the supplier is using immoral
employment practices even though employing child labour may not necessarily be
illegal in the country concerned. Because the practices are immoral the
purchasing company should not be seen to support them.

14. They promote respect and integrity within an organisation

They should identify the minimum acceptable standards of behaviour and
conduct of employees (2 marks)
Corporate Codes of Ethics identify how employees are expected to behave not
only towards each other, but also in relation to external parties such as customers
and suppliers. Therefore, the option about the Code only relating to dealings with
colleagues is incorrect because it suggests the codes have a solely internal focus.
Establishing minimum acceptable standards of behaviour is a vital part of a Code
of Ethics. Promoting an environment of respect based on integrity and trust is one
of the key benefits of having a Code of Ethics in an organisation. It is important to
recognise that acting lawfully and acting ethically are not the same thing. A
Accountant in Business (AB) (Answers to test-2) (Sep19-Aug20)

company (or an individual) may be acting within the law, but still be acting
unethically.

15. Drucker (1 mark)

According to Drucker, management can only justify its existence and its authority
by the economic results it produces.

16. Processed customer sales data (2 marks)

The other options are all sources of external data. Published government data is
publically available and so is open data. Customer social media interactions are
a form of external human sourced data. Sales growth data from an industry body
is data processed by another organisation. Processed customer sales data is
internally generated because of the organisations own retail activity and is
processed internally.

17. A minimum of one member of the committee should have expertise in

financial management (2 marks)
As part of the work of the audit committee is to review internal audit and internal
controls it is best practice to have at least one member of the committee with
expertise in financial management.

18. False (1 mark)

This is the definition of positive action, as people from disadvantaged groups
compete for vacancies on a fair basis. Positive discrimination gives preference
to a protected person, regardless of genuine suitability and qualification for the
job (practice which is not permitted by legislation).

19. To explain that the firm has to have a representative at the count so the
trainees must be prepared to modify their own wishes for the benefit of the
firm (2 marks)
When management responses to conflict are based on integration and
collaboration emphasis is placed on the task at hand. Individuals are encouraged
to accept the need to modify their views for the sake of the task. The other
management response styles described in the options would be:
Ignoring the issue: denial;
Arbitrarily selecting one of the accountants:
dominance;
Exemption from the next counts: compromise

20. Significant increases in single person households (2 marks)

Increased demand for organic and environmentally friendly products
Social and demographic trends reflect changes in consumers' values (change in
demand for organic and environmentally friendly products) and behaviour
(increases in single person households). ‘Rapid increases in household incomes’
and ‘Increased revenues from personal taxation’ relate to macroeconomic trends.
Accountant in Business (AB) (Answers to test-2) (Sep19-Aug20)

21. Existential culture (1 mark)

An existential culture (or person culture) is found in an organisation whose
purpose is to serve the interests of the individuals within it. Such organisations
depend on the talent of the individuals.

22. Multi-disciplinary teams (1 mark)

Each member of a multi-disciplinary team has a different skill or specialism that
can be pooled or exchanged.

23. The current month's cash flow forecast (2 marks)

The finance director is facing a question about what may happen in the future
rather than looking to report on something which has already happened.
Therefore the type of report he needs is a budget or forecast rather than a
historical document. In this case his key concerns relate to the amounts of cash
which are expected to flow into and out of the business between now and the end
of the month and the cash flow forecast should help him assess this.

24. Objectives (2 marks)

The measureable outcomes to be achieved within a definite time limit are known
as objectives.

25. Not accept the new engagement (2 marks)

Accountants (particularly members of a professional body such as ACCA) should
not accept engagements which lead, or could lead, to a conflict of interest arising
in the advice given to both clients. In this case the two companies are direct
competitors so by acting for both of them the accountant could face a conflict of
interest. For example the new client could ask the accountant to advise on a
project which would be detrimental to the existing client making it impossible for
the accountant to remain impartial and uphold the best interests of both clients at
the same time.
26. True (1 mark)
Non-executive directors should remain independent. They are not employees.
Whilst they take part in decision making at board meetings, they do not take part
in the day-to-day running of the company. Note: NEDs can be a shareholders of
the company, but are not allowed to take any part in share option schemes.

27. Producing summary data in respect of trade receivables (2 marks)

The working capital cycle consists of using cash to purchase inventory which is
then sold to customers (receivables) who then pay cash to settle their debt. So
the only option relating to the working capital cycle is producing summary data in
respect of trade receivables.

28. Distortion (1 mark)

Distortion occurs when the meaning of a message is lost at the coding or
decoding stage.
Accountant in Business (AB) (Answers to test-2) (Sep19-Aug20)

29. A rise in household income

A fall in the price of complements (2 marks)
A shift in the demand curve to the right indicates demand is increasing at all
prices. This could be caused by a rise in household income or a fall in the price of
complements. An expected fall in the price of the goods or a decrease in the
population would cause demand to fall and move the curve to the left.

30. Individuals may communicate horizontally more effectively through the

informal organisation (2 marks)
The informal organisation consists of social relationships, informal communication
networks, behavioural norms and power or influence structures which may by-
pass formal organisational arrangements. This may have a positive or negative
effect on the organisation depending on how it is managed. Communications
through the informal organisation usually faster, but may be slower than through
formal channels, depending on the situation. Rumours will certainly circulate
through the informal organisation. Therefore, through a process of elimination the
only correct option is: Individuals may communicate horizontally more effectively
through the informal organisation.

31. Frida balances the need to get the job done with the need to maintain the
team (2 marks)
A 5.5 rating on Blake and Mouton's managerial grid is designated middle of the
road indicating that Frida balances the need to get work out with maintaining team
morale.

32. What is right in one situation may not be right in another

Ethics are linked to cultural beliefs (1 mark)
Relativism suggests that a wide variety of acceptable ethical beliefs exist, and
that moral statements are subjective. Whereas, absolutism states on existence of
a set of moral rules which are always right (in any situation and any culture).

33. Setting the criteria for assessment (2 marks)

The very first step in implementing a performance appraisal system is to set the
criteria for assessment.

34. $207 billion (2 marks)

Factors that will increase aggregate demand:
Government spending + Purchases of industrial buildings, plant & machinery +
Local government spending + Exports = 10 + 8 + 7 + 4 = $29 billion
Factors that will decrease aggregate demand:
Reduced consumer spending + Imports = 15 + 7 = $22 billion
Adjusted aggregate demand:
200 + 29 -22 = $207 billion
Accountant in Business (AB) (Answers to test-2) (Sep19-Aug20)

35. True (1 mark)

Charles is guilty of ''Tipping off'' - disclosing information which may prejudice an
investigation into drug trafficking, drug money laundering, terrorist related
activities or laundering the proceeds of criminal conduct.

36. Management accountant (1 mark)

Analysing and projecting the costs and revenues is a part of the job function of a
management accountant. Treasury manager’s activities related to cash flow,
borrowings, debt, and capital management. Financial Accountant and Financial
Controller are responsible for running the accounting and financial activities of an
organisation.

37. A program within a system designed to independently solve complex

problems and make decisions (2 marks)
Abilities to solve complex problems and make own decisions are features of
Artificial Intelligence. The definitions in the other options relate to automation,
data analytics and robotics.
Robotics: The automation and replication of physical human capabilities by a
machine.
Automation: The ability of computer applications to perform routine activities and
processing of data without the input of a human.
Data Analytics: A system which collects, processes and analyses information
which an organisation can use for decision-making.

38. Professional behaviour (1 mark)

In accordance with the principle of professional behaviour, professional
accountants must comply with relevant laws and regulations and avoid any
action that discredits the profession.

39. Greater flexibility in deployment of skills (2 marks)

A matrix structure works across functional and product or customer or project
organisation. This leads to greater flexibility in deployment of skills with multiple
roles in individual jobs, but more difficulty in work coordination and decision
taking process, as one person has several different task and is accountable to
two or more managers.

40. Lenders and Shareholders (2 marks)

Executive directors and employees are internal stakeholders. Lenders and
shareholders are connected stakeholders.

41. Management (1 mark)

Management should provide control through analysis and review of accounts, for
example variance analysis and the provision of internal audit services.

42. Plant (2 marks)

According to Belbin, Janet is an example of the plant since although she is
creative and imaginative when dealing with problems, she is detached and does
not communicate effectively.
Accountant in Business (AB) (Answers to test-2) (Sep19-Aug20)

43. A factory in which many workers are employed to carry out homogeneous
tasks (2 marks)
A wide span of control is displayed by a flat organisation. A factory in which many
workers are employed to carry out similar tasks is an example of a flat
organisation. The other options display a narrow span of control due to multi-
skilled workers, specialisation or departmentalisation.

44. Abstract conceptualisation (2 marks)

The fourth element of Kolb's experimental learning cycle is abstract
conceptualisation.

45. Frictional (1 mark)

Poor communication of opportunities makes it difficult to quickly match workers
and jobs - friction in the labour market. Seasonal unemployment occurs when
people are unemployed at particular times of the year when demand for labour is
lower than usual. Structural unemployment is caused by a mismatch between the
skills that workers in the economy can offer, and the skills demanded of workers
by employers (also known as the skills gap).

46. To be a role model for an employee (1 mark)

Mentoring is a long-term relationship in which a more experienced person fosters
an individual's personal and career development by being their role model.
Counsellor helps others to explore their own problems. Coach shows a trainee
how to perform tasks.
Accountant in Business (AB) (Answers to test-2) (Sep19-Aug20)

Section B:
Question-1:
Task-1: (0.5 mark each)
Diagram A - An increase in the prices of substitute goods
An increase in the prices of substitute goods will influence demand, more items will be
demanded at any given price, as the good became cheaper compare to competitor’s
one. The demand curve moves right/up.

Diagram B - The introduction of a new, more efficient production process

The introduction of a new, more efficient production process will influence supply, more
items will be able to be supplied at any given cost/price. The supply curve moves to the
right.

Diagram C - A reduction in incomes of purchasers of the good

A reduction in incomes of purchasers of the good will influence demand, fewer items will
be affordable/demanded at any given price, as purchasing power of consumers has
fallen. The demand curve moves left/down.

Diagram D - An increase in the costs of factors of production

An increase in the costs of factors of production will influence supply, fewer items will be
able to be supplied at any given cost/price and less profit opportunities exist now for
producers. The supply curve moves to the left to reflect this.

Task-2: (1 mark each)

Correct answers:
In a perfectly competitive market, the demand curve is horizontal
A change in the price of a product causes a shift along the demand curve

 In a perfectly competitive market, the price is dictated by the market and the
demand for each firm is perfectly elastic, meaning the demand curve is a
horizontal line (any increase in price reduces demand to zero).

 The demand curve relates price and quantity demanded given that the other
conditions affecting demand remain constant. Thus, a change in price is a shift or
movement along the curve, whilst a change in the other conditions affecting
demand would cause a shift inwards, or outwards of the demand curve itself.
Accountant in Business (AB) (Answers to test-2) (Sep19-Aug20)

Incorrect answers:

 An illegal or unofficial market for goods is usually a consequence of an artificially

imposed maximum price (not a minimum one).

 If the demand for a product is perfectly elastic, the demand curve is horizontal
(vertical demand curve shows that product is perfectly inelastic).

 The supply curve for a product is the upward sloping section of the marginal cost
curve (not an average cost curve).

 In the long run, the supply curve is vertical (as it shows the maximum quantity of
goods that can be produced and supplied within a given economy).

Question-2:
Task-1: (0.5 mark each)
The chairman

The chairman leads the board of directors, and must ensure the effectiveness of board
meetings. This includes:

 ensuring full contributions are made by directors

 ensuring that each agenda item is allocated sufficient time for full discussion
 using of his/her authority to resolve conflict between individual directors
The secretary

The secretary has responsibility for the administrative side of board meetings. This
includes:
 preparing minutes of meetings
 issuing formal notices of meetings
 the resolution of procedural issues

Task-2: (0.5 mark each)

Correct Answers:
The shareholders are able to dismiss the chairman by resolution at a general
meeting
The same individual should not be the chairman and company secretary

 The shareholders may dismiss any director of the company at a formal general
meeting, provided adequate notice is given of the resolution to do so.
Accountant in Business (AB) (Answers to test-2) (Sep19-Aug20)

 Whilst rarely a legal requirement, separation of the roles of chairman and

secretary is an established principle of good corporate governance. It is
particularly relevant that the secretary manages communications between the
company and the registration authorities.

Incorrect answers:

 The chairman's remuneration should be based on fixed term contract fee, which
is NOT related to company’s performance (in order not to compromise the
independence of the NEDs).
 The chairman will be engaged by New Co as an external service provider under
a fixed term contract (NEDs should not be an employees of the company).
 There is no such a requirement that chairman should attend all standing
committees of the company (especially he/she should not chair the remuneration
committee).
 The chairman CAN hold shares in the company, but CANNOT participate in a
share option scheme (as it is performance-related reward).

Question-3: (1 mark each)

Axel - Preparing the financial statements
When “preparing the financial statements”, information from the accounting records of
the organisation must be summarised and annual totals calculated. This is the type of
work undertaken by Axel.

Bo - Codifying and processing financial information

Once financial data has been recorded, it must be transformed into information – this
may be described as “codifying and processing financial information”. Decisions must
be made as to what the data represents and how it should be processed in the
accounting system. This would include the checking and categorisation carried out by
Bo.

Corey - Recording financial information

All transactions must be entered into the accounting system before they can be
processed. This is known as “recording financial information”, and includes the work of
a data input clerk such as Corey.

Dagmar - Codifying and processing financial information

Once financial data has been recorded, it must be transformed into information – this
may be described as “codifying and processing financial information”. Decisions must
be made as to what the data represents and how it should be processed in the
accounting system. This would include the categorisation and decision making carried
out by Dagmar.
Accountant in Business (AB) (Answers to test-2) (Sep19-Aug20)

Question-4:
Task-1: (0.5 mark each)
Theory X
Theory X suggests that people dislike work and responsibility, and will avoid both if
possible. Thus, the theory suggests that workers:

 must be induced or controlled to deliver the desired output

 go to work only in order to meet their material needs (work to live)
 need coercion, direction and threats of punishment if they are to make an
appropriate effort

Theory Y
Theory Y suggests that people do not inherently dislike work, and that their satisfaction
or dissatisfaction depends upon conditions. The theory states that challenge and
responsibility, together with positive feedback, work as motivators for people. Therefore,
the following is true for Theory Y:

 the creativity and ingenuity of workers is rarely fully utilised

 people want to enjoy the work and can be stimulated by the right work
experiences, as such, work provides a valuable social function, helping with
psychological growth
 self-discipline can be more effective and motivating than discipline imposed by
others

Task-2: (0.5 mark each)

Interesting work and Recognition

“Recognition” and “Interesting work” are seen by Herzberg as a motivator factors –

factors which help satisfy the need for personal growth and hence contributes towards
lasting, long-term motivation.

All other answers relate to hygiene factors, which satisfy the need to avoid
unpleasantness, and can only motivate in the very short term.
Accountant in Business (AB) (Answers to test-2) (Sep19-Aug20)

Question-5:
Task-1: (1 mark each)
Calum – Tactical
Information required at the tactical level should help managers to monitor and control, to
check if things are working well. Calum’s information will help managers monitor and
control the training provision in the forthcoming year.

Ella – Operational
Information required at the operational level should help operational managers track day
to day activities, answer routine queries and process/track transactions. Ella’s
information will help track the operational activities of the sales personnel.

Frida – Strategic
Information required at the strategic level should help senior managers with long term
planning, and ensure appropriate responses to changing external environments. Frida’s
information will help with long-term planning regarding the labour resource.

Task-2: (1 mark)
Correct Answer: Ella
Ella’s information is entirely quantitative (numerical), and involves some routine
arithmetical calculations. As such it is ideally suited to a spreadsheet.

Question-6:
Task-1: (0.5 mark each)
Marek – Accountability
Accountability is the state of being liable or answerable. By accepting partial blame,
Marek is demonstrating accountability.

Leila – Openness
Openness means without concealment. Leila has shown openness by speaking about
her problems with colleagues.

Kate – Trust
Trust is a firm belief in the reliability or truth of something. Kate is showing trust by
believing that Judyta is speaking honestly.
Accountant in Business (AB) (Answers to test-2) (Sep19-Aug20)

Jonah – Empowerment
Empowerment means increasing the strength of an individual, be that strength
economic, political or any other form. By increasing the referral limits, Jonah is giving
branch managers more power to make loan approval decisions.

Task-2: (0.5 mark each)

Deontological - The individual takes a decision that will not be universally popular, but
is consistent with the fundamental principles governing the event
Deontology is an ethical approach based on duty, where duty may come from
legislation, contracts, best practices or commonly accepted behaviours. In this case
duty comes from the fundamental principles governing the event, and the statement
therefore refers to deontology.

Utilitarian - The individual takes a decision based on the view that it will benefit the
greatest number of people, even though the interests of minorities may be
compromised.
Utilitarianism means choosing the action likely to result in the greatest good for the
greatest number of people, regardless of the impact on the interests of minorities. This
statement therefore refers to utilitarianism.

Pluralist - The individual takes a decision that is a compromise between the views of
dissenting groups, recognising that none will be fully satisfied, but all will accept it.
Pluralism accepts that different views exist on morality, and suggests that a consensus
may sometimes be reachable. This statement therefore refers to pluralism.

Egoist - The individual takes a decision that reflects his or her own particular ethical
view, recognising that others may disagree but convinced that it is the right thing to do.
Egoism suggests that an act is justified if it contributes to the decision maker’s short
term desires or long-term interests. This statement therefore refers to egoism.