BMG704 Practice 1 Quiz; Answers

1.1 Which of the following is a non-current asset?

a. Factory premises owned by a business

b. Rental expenses incurred by a sole trader business during the
financial year
c. Accruals for wages
d. Closing stock

1.2 Which of the following is a current liability?

a. Insurance paid in advance of £50

b. Factory premises owned by the firm
c. A bank overdraft amounting to £100
d. Trade discount given by a supplier to a customer

1.3 Which of the following double entries correctly records purchase of IT

equipment costing £300?

a. Dr IT equipment account £300 Cr Bank £300

b. Dr purchases account £303 Cr bank account £303

1.4 The term ‘purchases’ means:

a. goods purchased from suppliers which had to be returned

b. all items bought for resale to customers
c. goods bought on credit only from suppliers

1.5 In the case of a sole trader business run by Joe:

a. earning profit of £11,110, increases Joe’s capital by £11,110

b. earning profit of £3, does not affect Joe’s capital by £3
c. earning profit of £900, decreases Joe’s capital by £900

1.6 The income statement (or statement of profit or loss) of a business entity
is used to:

a. record trade discount

b. summarise the financial position in respect of profits/losses
c. prepare a trial balance
 1.7 Which of the following is used to summarise the total equity in a limited
company?

a. the income statement

b. the annual report
c. the cashflow statement
d. the statement of financial position

1.8 On 1 January 2017, Tom, a sole trader started business with capital of
£2.5m. During the year he withdrew £2.3m for own use, and the closing
balance on the account was £3.1m. Assuming he did not provide
additional capital, the net profit for the year was:

Profit can be calculated by difference in closing (end of financial year)

capital and opening (start of the financial year) capital add any Drawings
Profit = Closing capital – Opening capital + Drawings
Profit = 2.3 – 2.5 + 3.1 = 2.9m

a. £2.9m
b. £3.19m
c. £2.3m
d. £2.5m

1.9 Which of the four fundamental accounting concepts will give rise to issues
such ownership/control of a business organisation:

a. the matching concept

b. the prudence concept
c. the business entity concept
d. the money measurement concept

1.10 The payback method of investment appraisal attempts to indicate how

long the project takes to recoup initial investment costs. This statement is:

a. true
b. false

1.11 Which of the following is ‘revenue expenditure’?

a. cost of a new shop front for use in the business costing

£110,000.
b. Stationary expenses incurred costing £10
c. proceeds arising from sale of a truck, where the purpose of the
business is a commercial vehicle dealership, amounting to
£119,000.
d. None of the above.

1.12 The NPV method of investment appraisals uses profits to arrive at the
final answer. This statement is:
:
 a. true
b. false

NPV use Cash flows – inflows and outflows

1.13 in international trade, trade barriers typically include: tariffs, quotas,

VER’s, technical specifications. This statement is:
a. true
b. false

1.14 A person who loans money to a public limited company is generally

known as:

a. a director
b. an administrator
c. a shareholder
d. a debenture-holder

1.15 international trade involves trade across national borders to include

international markets. This statement is:
:

a. true
b. false
c. None of these answers

1.16 Assuming that the total current liabilities of a business were £1m, and
the total
current assets were £999,000. The Working Capital amounted to:
Working capital = Current assets – Current Liabilities

a. -£100,000.00
b. -£1,000
c. -£10,009
d. £100,000.00

1.17 If a current ratio is 2:1, and the current assets were £60,000 and the
current
liabilities amounted to:
Current ratio = Current assets/Current liabilities
2= 60000/Current liabilities
Current Liabilities = 60000/2

a. £20,000
b. £60,000
c. £1,200
d. £30,000
 1.18 If a company’s gearing ratio is 37.5%, then its debt capital as a ratio of
its total
capital is:

100 – 37.5 = 62.5

37.5/62.5 = 3:5

a. 3:1
b. 3.75:1
c. 3:5
d. 1:3

1.19 If a business has an acid test ratio of 3:1, and the value of the current
assets including inventories (of which debtors and cash were £2m and
£1m respectively), amounted to £4m, what was the value of the closing
inventories?
Closing inventory = Current asset – Debtors - Cash
= 4 – 2 – 1 = £1m

a. £1m
b. £2m
c. £4m
d. none of the above

1.20 When a business purchases stock on credit costing £700, the current
ratio is likely
to:

a. decrease by £700 exactly

b. decrease
c. increase
d. remain unchanged
Decrease as credit purchase will increase current liabilities which would decrease
the current ratio.

1.21 The historic cost of an item:

a. is the current market value of an asset

b. is always the same as the replacement cost
c. is always the same as the net book value
d. is representative of the original cost as per the historic cost
concept

1.22 Bill the baker invested £100 in cherry pie machine. He received sales
revenues of £20, £20, £40, and £40 in years 1, 2, 3 and 4 respectively.
The payback period is:
Recovered money by the end of
1st year – 20
2nd year – 20+20 = 40
3rd year – 40+ 40 = 80
4rth year- 80 +40 = 120
So, the whole money recovered in the mid of 4rth year.

a. 4.5 years
b. 3.25 years
c. 2 years
d. 3.5 years

1.23 The current market value of a company’s ordinary shares is 400p per
share. The company’s EPS is 32p; and dividend cover 2 times. The
dividend payout ratio is:

Div. cover = EPS/Div. per share, 2 = 32/D, D = 16p

Div payout ratio = D/EPS = 16/32 = 0.5 or 50%

a. 5.0%
b. 55.50%
c. 50.50%
d. None of the above

1.24 The dividend yield ratio is calculated as follows:

a. dividend per share/earnings per share

b. current assets x current liabilities
c. earnings per share/dividend per share
d. dividend per share/market price per share

1.25 The purpose of a creditors control account is to determine:

a. total purchases for a trading period

b. opening creditors for a trading period
c. discount allowed for a trading period
d. credit purchases only for the trading period