Foundations in Accountancy/ACCA

Business and Technology (FBT/BT)

Course Examination 1

Marking scheme and solutions

For exams from 1 September 2020 to 31 August 2021

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Question 1
Question text
Which of the following are connected stakeholders to an organisation?
(i) Employees
(ii) Suppliers
(iii) Managers
(iv) Customers
Choose one:
 A. (i) and (iii)
 B. (i) and (iv)
 C. (ii) and (iv)
 D. (ii) and (iii)
Feedback
The Correct Answer is: C
The others are internal stakeholders.

Question 2
Question text
........................................ is an analysis of statistics on birth and death rates, age structures of people
and ethnic groups within a community.
Which word correctly completes the sentence?
Choose one:
 A. Ergonomics
 B. Economics
 C. Psychographics
 D. Demographics
Feedback
The Correct Answer is: D
Rationale: The statement defines demographics. Ergonomics is a study of the interaction of humans
and their environments (used in design of office equipment and furniture, for example).
Psychographics is the study of psychological factors (used in selection testing, for example).
Ways in: You could eliminate as many distractors as you could define in other ways.

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Question 3
Question text
The following, with one exception, are ‘protectionist measures’ in international trade. Which is the
exception?
Choose one:
 A. Import quotas
 B. Subsidies for exporters
 C. Customs procedures
 D. Tariffs
Feedback
The Correct Answer is: B
Rationale: Subsidies for exporters will encourage domestic exports, but will not help to protect
domestic producers against overseas producers. The other options are tariff (taxes and duties on
goods entering the country) and non-tariff barriers to trade.

Question 4
Question text
The supply curve of a firm operating in a competitive market is its
Choose one:
 A. Marginal cost curve above the average variable cost curve
 B. Marginal cost curve above the average total cost curve
 C. Average total cost curve beyond the point where the marginal cost curve cuts it from below
 D. Average variable cost curve below the average revenue curve
Feedback
The Correct Answer is: A
Rationale: The supply curve for a perfectly competitive firm is its marginal cost curve above the average
variable cost curve. The firm will not continue to produce if price is less than average variable cost.

Question 5
Question text
Which of the following statements is/are true?
(i) An informal organisation exists within every formal organisation
(ii) The objectives of the informal organisation are broadly the same as those of the formal
organisation
(iii) A strong, close-knit informal organisation is desirable within the formal organization
Choose one:
 A. Statement (i) only
 B. Statements (i) and (iii) only
 C. Statements (ii) and (iii) only
 D. Statement (iii) only

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Feedback
The Correct Answer is: A
Rationale: Statement (i) is true. Statement (ii) is not, because the informal organisation has its own
agenda. Statement (iii) is not, because a strong informal organisation with its own agenda can
undermine the formal organisation: create damaging rumours, safety/quality shortcuts, distractions
from task goals etc.

Question 6
Question text
The research and development (R & D) function of a business:
(i) is primarily concerned with market research
(ii) can improve existing products as well as developing completely new products
(iii) has been less important for firms manufacturing computers to meet an industry standard than for
those firms developing the next generation of computers
(iv) is always undertaken under contract by specialist external consultancies
Which of the above statements are correct?
Choose one:
 A. (i) and (ii) only
 B. (ii) and (iii) only
 C. (i), (iii) and (iv) only
 D. (ii) and (iv) only
Feedback
The Correct Answer is: B
Rationale: R & D tends to be concerned with product research (not market research), and many
organisations have internal R & D functions.
Pitfalls: Be aware of the difference between product and market research.
Ways in: If you were able to rule out statement (i), you were only left with two options to choose from
– and you should be able to rule out statement (iv) if you know any organisations with an internal R &
D department, leaving you with the correct option.

Question 7
Question text
Which of the following statements about corporate social responsibility is true?
(i) CSR guarantees increased profit levels
(ii) CSR adds cost to organisational activities and reduces profit levels
(iii) Social responsibility may have commercial benefits
(iv) Social responsibility is a concern confined to business organizations

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Choose one:
 A. (i), (ii), (iii) and (iv)
 B. (i) and (iii)
 C. (ii) and (iv)
 D. (iii) only
Feedback
The Correct Answer is: D
Rationale: Statement (i) is incorrect, because there is no such ‘guarantee’; statement (ii) because it is
not necessarily so, and statement (iv) because other organisations (eg charities, government bodies)
are often more concerned with social responsibility than businesses.
Ways in: It is always worth checking to see if logic helps. Words like ‘guarantee’ often signal an
untrue statement, because they make such extreme claims. And if statement (i) is therefore incorrect,
you’ve halved your options. It should then be obvious that (iv) is incorrect (if you think about a
hospital, say).

Question 8
Question text
Michael has been asked to prepare a presentation for the company directors on good corporate
governance. Which one of the following is he likely to exclude from his presentation?
Choose one:
 A. Risk management
 B. Internal controls
 C. Maximising shareholder wealth
 D. Accountability to stakeholders
Feedback
The Correct Answer is: C
Rationale: The objective of corporate governance is overall performance, enhanced by good
supervision and management, within best practice guidelines. Business is to be conducted in a way
that is both ethical and effective from the perspective of all stakeholders – not just shareholders.

Question 9
Question text
Which of the following is a feature of poor corporate governance?
Choose one:
 A. Domination of the board by a single individual
 B. Critical questioning of senior managers by external auditors
 C. Supervision of staff in key roles
 D. Lack of focus on short-term profitability

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Feedback
The Correct Answer is: A
Rationale: This is a feature of poor corporate governance because it makes way for self-interested
decision-making. The others may ‘look’ like negatives, but are in fact the opposites of three other
features of poor corporate governance: lack of independent scrutiny; lack of supervision; and an
emphasis on short-term profitability (which can cause pressure to conceal problems or manipulate
accounts).
Ways in: You could have got to the answer with logic, with a sound grasp of corporate governance –
but it would be worth learning the list of features of poor corporate governance, so you can recognise
them in an exam question.

Question 10
Question text
Joseph has just started his first job in an accountancy department. A qualified senior member of staff
explains to him what the main aim of accounting is. Which of the following options is the correct aim of
accounting?
Choose one:
 A. To maintain ledger accounts for every asset and liability
 B. To provide financial information to users of such information
 C. To produce a trial balance
 D. To record every financial transaction individually
Feedback
The Correct Answer is: B
Rationale: This is the main or overall aim of accounting.

Question 11
Question text
Which of the following statements about accounting information is incorrect?
Choose one:
 A. Some companies voluntarily provide specially-prepared financial information to employees.
 B. Accounting information should be relevant, reliable, complete, objective and timely.
 C. Accountants have a strong obligation to ensure that company accounts conform to accounting
standards
 D. Charities and professional bodies do not have to produce financial statements in the same
way as businesses.
Feedback
The Correct Answer is: D
Rationale: Non-commercial undertakings still prepare annual financial statements, for accountability
to their trustees, members or funding bodies.

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Question 12
Question text
Three of the following are outputs of a payroll system, and one is an input to the system. Which is the
input?
Choose one:
 A. Credit transfer forms
 B. Time sheets
 C. Payroll analysis
 D. Pay slips
Feedback
The Correct Answer is: B
Rationale: Time sheets are used to calculate hours worked and overtime, in order to calculate gross
pay (before deductions). The system information for management (payroll analysis), information for
employees (pay slips) and methods of payment (credit transfer forms), are all outputs.
Pitfalls: It is worth sorting out the inputs, processing and outputs of any financial system.

Question 13
Question text
Which of the following is an aim of the control system relating to accounts payable and purchases?
Choose one:
 A. To ensure that all credit notes received are recorded in the general and payables ledger
 B. To ensure that goods and services are only supplied to customers with good credit ratings
 C. To ensure that all credit notes that have been issued are recorded in the general and
receivables ledgers
 D. To ensure that potentially doubtful debts are identified
Feedback
The Correct Answer is: A
Rationale: All the other aims relate to the control system relating to receivables and sales.
Pitfalls: You have to get straight in your mind which transactions and controls relate to
payables/purchases and which to receivables/sales.
Ways in: Careful reading of the question should allow you to eliminate options B and D immediately
(sales/supply, not purchases). You then have to think how credit notes work – but the fact that Option
A mentions the ‘purchase’ ledger, and Option C the ‘sales’ ledger should lead you to the right answer.

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Question 14
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The following, with one exception, are areas in which an integrated accounting software package has
advantages compared to a series of separate (stand-alone) dedicated programs. Which is the
exception?
Choose one:
 A. Efficiency in updating data
 B. Flexibility in preparing reports
 C. Data integrity
 D. Specialised capabilities
Feedback
The Correct Answer is: D
Rationale: An integrated package is expected to do everything, so it may have fewer facilities than
specialised modules (especially as it also requires more computer memory). The other options are
advantages of integration: ability to update multiple records from one data entry; ability to extract data
from all relevant sources to compile specified reports; and less likelihood of discrepancies in different
records.

Question 15
Question text
A ........................................ is a program which deals with one particular part of a computerised
business accounting system.
Which of the following terms correctly completes this definition?
Choose one:
 A. Suite
 B. Module
 C. Spreadsheet
 D. Database
Feedback
The Correct Answer is: B
Rationale: A suite is a set of several modules. A spreadsheet is a type of program, and a format for
displaying and processing data: it is often used to integrate data from accounting modules for
decision-support and management information systems. A database is a collection of data.

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Question 16
Question text
Which of the following is not an aim of internal controls?
Choose one:
 A. To enable the organisation to respond appropriately to business, operational and financial
risks
 B. To eliminate the possibility of impacts from poor judgement and human error
 C. To help ensure the quality of internal and external reporting
 D. To help ensure compliance with applicable laws and regulations
Feedback
The Correct Answer is: B
Rationale: Options A, C and D were identified as aims of internal controls in the Turnbull report.
However, the report also states that even a sound system of internal control reduces, but does not
eliminate, the possibilities of poorly-judged decisions, human error, deliberate circumvention of controls
and unforeseeable circumstances. Systems only provide reasonable (not absolute) assurance.
Ways in: If you had to guess, you could probably see that option B is an exaggerated claim. Look out
for options that say ‘always’ or ‘never’ or ‘total’, in a similar vein: these are much more likely to be
untrue than true, in the complex world of business…

Question 17
Question text
Some controls are provided automatically by the system and cannot be by-passed, ignored or
overridden: for example, having to input a password to enter a computer system. These are classified
as ........................................ controls.
Which term correctly completes this statement?
Choose one:
 A. Detect
 B. Mandated
 C. Non-discretionary
 D. Administrative
Feedback
The Correct Answer is: C
Rationale: Non-discretionary controls are as described: as opposed to discretionary controls which
are subject to human choice. ‘Mandated’ is a similar idea, but mandated controls are required by law
and imposed by external authorities (as opposed to voluntary controls, chosen by the organisation).
Detect controls are controls designed to detect errors once they have happened. Administrative
controls are to do with reporting responsibilities, communication channels and other means of
implementing policies.
Pitfalls: There is so much terminology in this area: fertile ground for exam questions. Be able to use
distinctions within classifications (as in ‘discretionary and non-discretionary’, or ‘prevent, detect,
control’) as well as across classifications, as in this question.

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Question 18
Question text
Which of the following is not an internal check?
Choose one:
 A. Separation of duties for authorising, custody and recording
 B. Pre-lists, post-lists and control totals
 C. Bank reconciliations
 D. Systems for authorising transactions within specified spending limits
Feedback
The Correct Answer is: D
Rationale: This is an internal control, rather than an internal check. Internal checks are more about
dividing work (so that the work of one person can be independently proved by that of another) and using
‘proof measures’ to ensure the accuracy of records and calculations: options A, B and C are examples.

Question 19
Question text
Which of the following statements about internal audit is true?
Choose one:
 A. Internal audit is an independent appraisal activity
 B. Internal audit is separate from the organisation’s internal control system
 C. Internal audit is carried out solely for the benefit of the organisation’s stakeholders
 D. The internal audit function reports to the finance director
Feedback
The Correct Answer is: A
Rationale: Internal audit is independent, but is still part of the internal control system: it is a control
which examines and evaluates the adequacy and efficacy of other controls. Internal auditors should
report direct to the audit committee of the board of directors (in order to preserve independence). It is
external audit which is for the benefit of shareholders: internal audit is a service to management.
Ways in: Once you realised that the options were circling round different aspects of the definition of
internal audit, and the difference between internal and external audit, you would be better able to sort
out which statement was given to you ‘straight’ – and which were opposites of the true points.

Question 20
Question text
All of the following, with one exception, are inherent limitations of internal control systems. Which is
the exception?
Choose one:
 A. The costs of control
 B. Potential for human error and deliberate override
 C. The types of transactions controls are designed to cope with
 D. The independence of controls from the method of data processing

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Feedback
The Correct Answer is: D
Rationale: It would be a limitation if controls depended on the method of data processing. The others
are limitations, because: the costs of control must not outweigh the benefits; there is always potential
for both human error and deliberate override of controls by management; and controls are designed
to cope with routine transactions, not non-routine transactions.

Question 21
Question text
Which of the following activities create vulnerability to fraud?
(i) Calculating payslips
(ii) Preparing delivery notes
(iii) Paying supplier invoices
(iv) Meeting budgets and performance targets
Choose one:
 A. (iii) only
 B. (i) and (iii) only
 C. (i) and (ii) only
 D. (i), (ii), (iii) and (iv)
Feedback
The Correct Answer is: D
Rationale: Payslips can be deliberately miscalculated to pay extra amounts. Staff may collude with
customers to under-record quantities of despatched goods on delivery notes so the customer pays less:
conversely, employees may collude with suppliers to pay invoices for larger quantities than were
actually delivered. Option (iv) may have made you hesitate: it seems such a positive, desirable thing!
However, profits in excess of target may be siphoned off, with less scrutiny once targets have been met.

Question 22
Question text
X plc has a bad debt policy whereby aged receivables who are obviously not going to pay, are written
off. The financial accountant does not enforce this policy.
This might be fraudulent insofar as it creates which of the following effects?
Choose one:
 A. It removes funds from the business
 B. It results in the understatement of profits and net assets
 C. It results in the overstatement of profits and net assets
 D. It results in the intentional overstatement of profits and net assets
Feedback
The Correct Answer is: D
Rationale: One form of fraud is the intentional misrepresentation of the financial position of the
business. Bad debt policy may be unenforced deliberately, in order to overstate profits.

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Question 23
Question text
All of the following, with one exception, are internal factors which might increase the risk profile of a
business. Which is the exception?
Choose one:
 A. Increased competition
 B. Corporate restructuring
 C. Upgraded management information system
 D. New personnel
Feedback
The Correct Answer is: A
Rationale: Increased competition is a risk factor (because it may put pressure on managers to
manipulate results) – but it is an external factor. The others are internal factors which increase risk
because they disrupt supervision and control (options B and C) or introduce unknown factors (option
D).
Pitfalls: Look carefully at question stems for qualifier key words such as ‘internal’ and ‘external’.

Question 24
Question text
Which of the following would most clearly present a personnel risk of fraud?
Choose one:
 A. Segregation of duties
 B. High staff morale
 C. Staff not taking their full holiday entitlements
 D. Consultative management style
Feedback
The Correct Answer is: C
Rationale: This may seem like normal behaviour in a ‘workaholic’ office culture, but failure to take full
holiday entitlement may signal an employee trying to prevent a temporary replacement from
uncovering a fraud. The other options are factors in reducing risk: lack of segregation enables fraud to
go undetected; low staff morale is often a motive for fraud (in retaliation against the firm); and an
autocratic management style may prevent questioning.
Pitfalls: Ensure that you know what ‘segregation of duties’ means: otherwise, it might look like a risk
factor (because it sounds like allowing people to work independently and unsupervised, say).

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 Question 25
Question text
All of the following, with one exception, are potential impacts on a business of removal of significant
funds or assets. Which is the exception?
Choose one:
 A. Fall in returns to shareholders
 B. Reduction in profits
 C. Increase in working capital
 D. Reputational damage
Feedback
The Correct Answer is: C
Rationale: There is a reduction in working capital, which makes it more difficult for the company to
operate effectively, potentially resulting in corporate collapse. The other effects should be obvious
(remember, we are talking about removal of funds or assets and not overstatement of profits and/or
net assets). Reputational damage refers to loss of shareholder and market confidence in the
organisation’s management when the fraud emerges.

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