in statement of profit and loss, the order of figures presented is

GP, profit before interest and tax, profit for period, retained profit

choosing a suitable source of finance depends on several factors included in the acronym SPACED which stands for

size and status, purpose, amount, cost, external factors, duration

items of monetary value that are owned by a business

Favourable variances exist when

the discrepancies are financially beneficial to the organization

the ___ shows the business' assets, liabilities and equity

proft and loss account, balance sheet

a current ratio of less than 1 means

the short-term debts of the business are greater than its liquid assets

Liquidity crisis refers to a situation where

current liabilities exceed current assets

in the balance sheet, the order of figures presented is

fixed assets, liquid assets, current liabilities, NC liabilities, equity

obsolescence is a fall in the value of a fixed asset due to them being

outdated as newer, better version become available

cost centre is a department or unit of a business

incurs costs but is not involved in earning any profit

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bm unit 3

115 termsStudBud Administration10 plays

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Questions 115

Answers

1
Sale-and-leaseback involves a business selling a fixed asset (to raise finance)and immediately leasing the property back
True
False
2
in ther balance sheet the monetary values are presented in two columns
True
False
3
in statement of profit and loss, the order of figures presented is
profit before interest and tax, GP, profit for period, retained profit
GP, profit for period, profit before interest, retained profit
GP, profit before interest and tax, profit for period, retained profit
4
Bankruptcy is a last resort and occurs when all attempts to tackle insolvency have failed.
True
False
5
Expenses are the ___ costs of production
indirect
fixed
variable
A and C
6
Capital expenditure is the finance spent on fixed assets
False
True
7
Collateral is the financial guarantee for securing external loan capital to finance investment for business growth
True
False
8
balance sheet can be inaccurate because
all
it is a static document
The market value of an asset is not necessarily the same as its book value
it does not include intangible assets and the value of human capital
9
obsolete asset is an unused asset
False
True
10
choosing a suitable source of finance depends on several factors included in the acronym SPACED which stands for
size and status, purpose, amount, cost, external factors, duration
structure, purpose, amount, cost, external factors, duration
size and status, purpose, amount, crowdfunding, external factors, duration
size and status, politics, amount, cost, external factors, duration
11
Investment is the spending on capital or productive assets
True
False
12
the higher the liquidity ratio, the better it is for the business
True
False
13
in a budget, it is not necessary to indicate whether the variance is favorable or adverse
True
False
14
assets are
legal obligations of a business to repay its lenders or suppliers later
items of monetary value that are owned by a business
the value of the business that belongs to the owners
15
which method of calculating depreciation based on their usage rather than time
units of production
straight line
16
liquidity ratios look at the ability of a firm to pay its long- term liabilities
True
False
17
direct costs are ones which wouldnt be incurred without producing output
True
False
18
Favourable variances exist when
the discrepancies are financially detrimental to the organization
the discrepancies are financially beneficial to the organization
19
revenue expenditure includes
raw materials, rent and utility bills
insurance and advertising spending
payment for wages, salaries
all of the above
20
sales revenue is calculated by cost * quantity sold
False
True
21
creditor days ratio measures the number of days it takes, on average, for a business to pay its trade creditors
True
False
22
the ___ shows the business' assets, liabilities and equity
proft and loss account
balance sheet
23
a current ratio of less than 1 means
the liquid assets of the business are greater than its short-term debts
the short-term debts of the business are greater than its liquid assets
24
Bad debts exist when debtors are unable to pay their outstanding invoices, which reduces the cash inflows of the vendor
False
True
25
an example of current assets include
cash
all of the above
debtors
stock
26
profitablity ratios are relevant for
non-profit businesses
for-profit businesses
27
The lower the gearing ratio, the larger the firm’s dependence on long term sources of borrowing
True
False
28
Investment appraisal are used to calculate the financial costs and benefits of an investment decision
False
True
29
price is paid by
the customer
the business
30
the main weakness of the straight line method is
B & C
it is hard to calculate
it is not realistic
doesnt account for the loss of efficiency/ the higher repair costs overtime
31
An asset's market value can be lower than its book value because of brand value or goodwill
True
False
32
examples of direct costs include rent and lightning costs
True
False
33
retained profit from P&L account is found in the assets section in the balance sheet
False
True
34
Liquidity crisis refers to a situation where
current liabilities exceed current assets
current liabilities exceed fixed assets.
non-current liabilities exceed fixed assets.
non-current liabilities exceed current assets.
35
business angels invest in
low-risk, high return
high-risk, low-return
low-risk, low-return
high-risk, high-return
36
___ costs stay the same regardless of how much output a business produces
variable
fixed
indirect
direct
37
retained profit is the value of profits that a business keeps before paying taxes and dividends to its shareholders
True
False
38
in the balance sheet, the order of figures presented is
fixed assets, liquid assets, current liabilities, NC liabilities, equity
liquid assets, fixed assets, equity, current liabilities, NC liabilities
equity, fixed assets, liquid assets, current liabilities, NC liabilities,
39
obsolescence is a fall in the value of a fixed asset due to them being
used repeatedly over time, so they wear out and raise maintenance costs
outdated as newer, better version become available
40
the ___ shows the revenue and expenses of a business
proft and loss account
balance sheet
41
Working capital = net current assets
True
False
42
main causes of cash flow problems do not include
overstocking
Over borrowing
reducing cash outflows
overtraiding
43
COGS on the P&L account are the direct costs
True
False
44
short-term source of finance is
overdrafts
microfinance
business angels
loan capital
45
Depreciation spreads the historic cost (purchase cost) of fixed assets over their useful lifespan
False
True
46
cost centre is a department or unit of a business
doesnt incurs costs and is not involved in earning any profit
doesnt incurincur costs but is involved in earning profit
incurs costs and is involved in earning any profit
incurs costs but is not involved in earning any profit
47
Short term interest-bearing loan that enables firms to temporarily use more money than they have in their bank accounts
overdraft
creditor
tax
48
___ are fixed costs, whereas ___ are variable costs
hourly wages, salaries
piece-rate wages, hourly wages
salaries, hourly wages
piece-rate wages, salaries
49
Variance = Budgeted outcome - Actual outcome
False
True
50
profit centre is a department or unit of a business that incurs both costs and revenues
True
False
51
all direct costs are variable
True
False
52
net assets=(Non-current liabilities + Current liabilities) - (Non-current assets + Current assets)
False
True
53
budget - a financial plan of expected revenue and expenditure for an organization or a department for a given time frame
False
True
54
In statement for profit and loss all monetary values are in one coloumn
True
False
55
the opening balance is the same value as the preceding month’s closing balance
True
False
56
in profitability ratios, profit before interest and tax is used for
Historical comparisons
both
inter-firm comparison
57
the legal act of creative accounting by manipulating financial data to make the results appear more appealing is
window dressing
accounts dressing
balance dressing
door dressing
58
share capital is
internal source of finance
external source of finance
59
cost is incurred by
the customer
the business
60
goodwill exists when the value of a firm exceeds its book value
True
False
61
Profit = Gross profit – Expenses
True
False
62
Current assets – Stock/Current liabilities =
current ratio
acid test ratio
63
finance spent on the daily operations of a business is
capital exenditure
revenue expenditure
64
ARR calculates the average profit on an investment project expressed as a percentage of the amount invested
True
False
65
average revenue is the price a customer pays
True
False
66
A __ creditor days ratio means that repayments are prolonged
low
high
67
profit for period is profit
before tax, after interest
before interest, after tax
after interest and tax
before interest and tax
68
Annual depreciation = (Purchase cost - Residual value) / Lifespan
True
False
69
Insolvency
is the formal and legal declaration of inability to settle one's debts
inability to settle debts when they are due because of lack of funds/cash
70
dividends are subtracted from profit for period
False
True
71
The organization’s ability to collect debts within a suitable timeframe is known as credit control
True
False
72
the discount factor can represent
neither
interest rates
both
inflation
73
___ reduces the value of a non-current asset by the same value each year throughout its useful life span
straight line method
units of production method
74
fixed costs
do not change
can change independently of the level of output
change in relation to the level of output
75
personal funds are often used to fund
companies
sole traders
NGOs
cooperatives
76
total costs are calculated by
TVC-TFC
TFC-TVC
TVC+TFC
77
net cash flow = cash inflow - cash outflow
False
True
78
Closing balance = Opening balance - Net cash flow
True
False
79
___ costs change with the level of output
fixed
indirect
direct
variable
80
Mortgages are for
machinery for factories
impoving cash flow
buildings and land
81
acid test ratio can be more meaningful than the current ratio because stocks are not always easily converted into cash
False
True
82
examples of set-up costs include
depreciation
hiring costs
lease payments
advertising cost
83
crowdfunding is suitable for public limited companies
True
False
84
The money that the business has on its premises or held in its bank account
debtors
cash
stock
85
microfinance providers is a type of financial service
provided by unofficial lenders
aimed at entrepreneurs who otherwise wouldnt be able to secure a loan
providing small, short-term loans for small businesses
86
the increase in value of a fixed asset is
appreciation
depreciation
87
___ ratios show how efficiently an organization’s resources have been used
liquidity
profitability
effciency
88
Capital employed =
current liabilities + Equity
Non-current liabilities + Equity
89
Long-term sources of finance are those available for any period of more than ___ from the accounting period
12 months
5 months
12 years
10 years
90
liquidity refers to how easily an asset can be turned into cash
True
False
91
fixed assets are intended to be sold in the short term
True
False
92
dividends are an example of sale revenue
True
False
93
COGS = Closing stock + Purchases – Opening stock
True
False
94
there is an internationally standardized format of P&L accounts
False
True
95
fixed costs exist if there is no output
False
True
96
profit margin is
the percentage of sales turnover that is turned into overall profit
a firm’s gross profit expressed as a percentage of its sales revenue
the profit generated as a percentage of the resources employed
97
Depreciation expense = Depreciation per unit × Number of units produced
False
True
98
intangible assets are non-physical fixed assets that have the ability to earn revenue for a business
True
False
99
Variance analysis compares the degree of budgetary success
False
True
100
PBP=Contribution per month /Initial investment cost
True
False
101
Cash outflows refers to cash that comes into a business during a given time period
False
True
102
Depreciation per unit =
Expected number of units over lifetime / Purchase cost - Scrap value
Purchase cost - Scrap value
Purchase cost - Scrap value / Expected number of units over lifetime
103
the value of a firm’s gross profit expressed as a percentage of its sales revenue is
GPM
ROCE
profit margin
104
debtor days ratio measures the number of days it takes a business, on average, to collect money from its debtors.
False
True
105
Reducing cash outflows can be achieved by
Improved product portfolio
Cash payments only
Better stock control
106
profitability ratios examine the ability of a firm to pay its short- term liabilities
False
True
107
overdraft is a financial service
that allows a business to postpone payments or to ‘buy now and pay later’
whereby the customer pays rental income to hire assets from its legal owner
that allows to take out more money than a firm has in the account
108
a non-current asset (fixed) is any asset used for operations (rather than for selling) and is likely to last __
12 months from the balance sheet date
6 months from the set up date
12 months from the set-up date
5 years from the balance sheet date
109
In P&L account, what values are in parenthesis?
the ones added
the ones subtracted
110
total equity =
total assets – current liabilities
net assets - retained earnings
net assets
fixed assets - non-current liabilities
111
The importance of budgets and variances in decision-making:
planning and guidance
motivation
control
all
112
dormant asset is an outdated asset
False
True
113
stock turnover ratio measures the number of __ an organization sells its stocks within a time period
times
can be both
days
neither
114
___ ratio examines the firm’s capital employed that is financed by long term debt
GPM
gearing
current
115
Cash outflows refers to cash that leaves a business during a given time period
True
False

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