Net Present Value Calculations

1) 

to invest if the NPV is above a hurdle level.

2) 

to invest in projects with the lowest discount rate.

3) 

to invest in projects with the highest discount rate.

4) 

to invest if the NPV is positive.

1) 

none of the options is a major deficiency of the ARR method

2) 

it ignores the timing of cash flows and subsequent profits

3) 

profits and costs are measured the same way

4) 

it is too simplistic to calculate

1) 

net cash inflow.

2) 

net cash flow.

3) 

investment.

4) 

opportunity cost.

1) 

physically implementation of the project or investment

2) 

to arrange finance for the project

3) 

to start the planning process

4) 

to analyse the data collected for decision making

1) 

too simplistic.

2) 

mostly accurate.

3) 

very accurate.

4) 

too complex for normal use.

1) 

they are risk free.

2) 

they often require large amounts of resources in relation to the asset base of the entity.

3) 

normally a relatively large cash outlay is required initially, but returns are received over a short period of time.

4) 

they rarely span long periods of time.

1) 

cloud computing

2) 

new plant and machinery

3) 

bill payment systems

4) 

computer networks

1) 

2 years

2) 

2.25 years

3) 

2.5 years

4) 

2.6 years

1) 

the timing of the expected cash flows

2) 

all of the expected cash flows

3) 

only cash flows so it is not affected by changes to accounting rules and standards

4) 

all of the options are advantages of the NPV method

1) 

both methods are based on accounting profits

2) 

if two projects have the same ARR the one with the lowest payback period would be preferred

3) 

both methods are simplistic and may be useful for a quick analysis to sort out projects for further analysis

4) 

both methods are quite easy for managers to understand

1) 

at the start of the period.

2) 

uniformly throughout the period.

3) 

in the middle of the period.

4) 

at the end of the period.

1) 

replacement of old assets as they wear out

2) 

new technology to decrease costs

3) 

new investments to increase revenue

4) 

the capital investment project does not fit any of the categories

1) 

depreciation on buildings

2) 

supervisory salaries

3) 

direct labour

4) 

local government rates

1) 

remains constant as the level of activity changes.

2) 

varies inversely with changes in the level of activity.

3) 

remains constant per unit as the level of activity changes.

4) 

is a fixed proportion of profit.

1) 

level of activity where cost behaviour is assumed to be valid.

2) 

level of activity where an entity will operate.

3) 

level of activity where all costs can be predicted accurately.

4) 

physical area where an entity plans to conduct its business.

1) 

$31 per unit

2) 

$5 per unit

3) 

$6 per unit

4) 

$1.38 per unit

1) 

no costs will remain the same.

2) 

some costs will vary, others will not.

3) 

most costs will rise.

4) 

costs should remain the same.

1) 

$1000

2) 

$4000

3) 

$5000

4) 

none of the options is correct

1) 

total revenue line crosses the fixed cost line.

2) 

total revenue line is above the total cost line.

3) 

total revenue line crosses the variable cost line.

4) 

total revenue line crosses the total cost line.

1) 

total fixed costs

2) 

the number of units sold

3) 

the sales price per unit

4) 

variable cost per unit

1) 

selling price less cost of sales.

2) 

selling price less variable costs.

3) 

selling price less fixed costs.

4) 

selling price less gross profit.

1) 

may or may not be incurred depending on management's discretion.

2) 

occurs at various times of the year.

3) 

varies with changes in activity.

4) 

all of the options are correct

1) 

total sales equals fixed costs plus profit

2) 

total sales equals total variable costs

3) 

total sales equals total costs

4) 

total sales equals total variable costs minus profit

1) 

20 000 units

2) 

$50 000

3) 

50 000 units

4) 

$100 000

1) 

budgeted balance sheet

2) 

production budget

3) 

capital budget

4) 

cash budget

1) 

cash budget

2) 

purchases budget

3) 

depreciation budget

4) 

capital budget

1) 

sales budget

2) 

expenses budget

3) 

cash budget

4) 

program budget

1) 

$22 000

2) 

$7500

3) 

$11 250

4) 

$6600

1) 

working hours of employees.

2) 

sales.

3) 

factory capacity.

4) 

production.

1) 

a flexed budget

2) 

a program budget

3) 

an assembly of budgets

4) 

a master budget

1) 

budgeted income statement.

2) 

budgeted balance sheet.

3) 

capital budget.

4) 

sales budget.

1) 

sales budget, materials budget, production budget

2) 

production budget, sales budget, materials budget

3) 

production budget, sales budget, labour budget

4) 

sales budget, production budget, materials budget

1) 

setting targets for managers

2) 

identifying resource constraints in the budget period

3) 

planning labour and other inputs

4) 

all the options are ways that budgeting and its associated planning can assist in decision making

1) 

sales budget

2) 

cash budget

3) 

production budget

4) 

budgeted income statement

1) 

a budgeted income statement.

2) 

a cash budget.

3) 

a labour budget.

4) 

a direct materials budget.

1) 

fittings for the kitchen cabinets

2) 

wages of tradesmen

3) 

depreciation of tools and equipment

4) 

timber for the kitchen cabinets

1) 

The financial reports can be both oriented to the past or to the future

2) 

The financial reports are very heavily regulated.

3) 

The financial reports are specific purpose reports.

4) 

The financial reports are prepared whenever information is needed for decision making purposes.

1) 

a product

2) 

a department

3) 

a business unit

4) 

all of the options can be cost objects

1) 

Cannot be traced directly to a cost object

2) 

Costs incurred solely for the benefit of the department

3) 

Sometimes called overheads

4) 

They are essential to the business but not directly traceable to the individual departments

1) 

Deciding on the overall objectives of the business.

2) 

comparing budgeted plans with actual results and taking corrective action.

3) 

Providing financing information to a bank.

4) 

Setting long term (strategic) plans.

1) 

The type of business

2) 

The knowledge of the accountant

3) 

The computer tracing system within the organisation

4) 

The definition of the cost object

1) 

Cost centre

2) 

Profit centre

3) 

Investment centre

4) 

General centre

1) 

Departmental net profit less depreciation expense.

2) 

Departmental interest expense plus interest revenue.

3) 

Departmental gross profit less direct costs.

4) 

Departmental revenues less interest expense.

1) 

an accounting system

2) 

a management system

3) 

a costing system

4) 

none of the options is a name for a system used to allocate costs to cost objects

1) 

Lean manufacturing

2) 

Just in time inventory management

3) 

AASB 101 Presentation of Financial Statements

4) 

Total Quality Management

1) 

cash minus current liabilities

2) 

current assets minus current liabilities

3) 

the ability to meet short-term financial commitments

4) 

cash plus currents assets

1) 

debentures are issued to raise debt funding

2) 

debentures are secured by a fixed or floating charge over the issuing entity's assets

3) 

debentures may be issued to the public via a prospectus

4) 

all of the options are characteristics of debentures

1) 

the issue of new shares to existing shareholders in proportion to their current holdings

2) 

the right to subscribe to shares at a  price and time that are predetermined

3) 

an issue of shares where the shareholder has the right to decide whether the shares are classified as debt or equity

4) 

none of the options is true

1) 

temporary, permanent or spontaneous sources of funding.

2) 

temporary sources of funding

3) 

spontaneous sources of funding only

4) 

spontaneous and permanent sources of funding

1) 

debtors are paying their accounts faster

2) 

debtors are taking longer to pay their accounts

3) 

debtors are buying less on credit

4) 

sales on credit are increasing

1) 

get them to fill in a credit-scoring questionnaire before extending credit

2) 

have their directors give a personal guarantee for the amount owing

3) 

limit the size of credit a customer can build up

4) 

all of the options are true

1) 

leasing

2) 

fully drawn advances

3) 

instalment loans

4) 

commercial bills

1) 

an accountant

2) 

a supermarket

3) 

a medical practice

4) 

an auto electrician

1) 

spontaneous.

2) 

temporary.

3) 

permanent.

4) 

all of the options are forms of funding

1) 

corporate bonds

2) 

unsecured notes

3) 

debentures

4) 

all the options are methods of raising debt from the Australian market

1) 

profit by sales revenue

2) 

profit by shareholder's equity.

3) 

gross profit by sales revenue.

4) 

sales revenue by cost of sales

1) 

net sales.

2) 

profit.

3) 

cost of sales

4) 

gross profit.

1) 

calculation of liquidity ratios.

2) 

calculation of profitability ratios.

3) 

calculation of percentage changes from the previous year.

4) 

evaluation of data relative to a base year.

1) 

1.6:1

2) 

2.5:1

3) 

1:1

4) 

1.2:1

1) 

18.5%

2) 

16.8%

3) 

15%

4) 

168%

1) 

all the options are appropriate benchmarks

2) 

industry averages

3) 

other entities in the same industry

4) 

the entity's ratios over time

1) 

survive in the long-term

2) 

meet its short term obligations and unexpected cash needs

3) 

generate profit

4) 

all of the options are correct

1) 

the year-end balance of the balance sheet item should be used

2) 

the average of the beginning and ending year values should be taken for the balance sheet item rather than just using the year-end value.

3) 

the beginning balance of the balance sheet item should be used

4) 

none of the options is correct

1) 

quick asset ratio

2) 

working capital ratio

3) 

cash flow ratio

4) 

capital structure ratio

1) 

average total assets by sales revenue.

2) 

average total assets by profit.

3) 

profit by average total assets.

4) 

sales revenue by average total assets

1) 

inventory is being sold faster

2) 

it is taking longer to sell inventory

3) 

the inventory turnover ratio is too high

4) 

the inventory turnover ratio is too low

1) 

profit that the entity has generated specifically for its owners

2) 

ability of an entity to generate income from its asset investments

3) 

the relative amount of cash flow generated by each sales revenue dollar

4) 

none of the options is correct

1) 

asset turnover ratio.

2) 

times interest cover ratio.

3) 

days inventory.

4) 

times debtors turnover.

1) 

profitability

2) 

cash flow

3) 

none of the options is correct

4) 

turnover of debtors

1) 

it is taking longer to collect money from trade debtors.

2) 

the time taken to collect money from trade debtors is decreasing

3) 

the time taken to sell inventory is increasing

4) 

none of the options is correct

1) 

It has a unlimited life.

2) 

It has limited liability.

3) 

It has the ability to raise large amounts of capital.

4) 

It must comply with the Corporations Act 2001 and other legislation.

1) 

increased disclosure requirements

2) 

costs associated with running IPOs

3) 

potential loss of control

4) 

all options are disadvantages

1) 

increase assets.

2) 

increase expenses.

3) 

decrease income.

4) 

decrease retained earnings.

1) 

it is a separate legal entity

2) 

it can sue or be sued

3) 

limited liability of shareholders

4) 

it is listed on the securities exchange

1) 

Partnership

2) 

Company

3) 

Sole trader

4) 

None of the options shown would contain a retained earnings account

1) 

all of the options are true

2) 

but not all companies issue preference shares.

3) 

but not all companies issue options

4) 

but not all companies issue rights issues

1) 

assets plus liabilities.

2) 

profit earned for the period plus retained earnings at the start of the period.

3) 

retained earnings at the beginning of the period plus profit earned for the period minus dividends.

4) 

retained earnings at the beginning of the period plus profit earned for the period minus liabilities.

1) 

Harder to raise funds and gives the owner full control

2) 

Shared control, tax advantages for family members, limited life

3) 

Simple to set up and control will always remain with the founder

4) 

Easier to transfer ownership and raise funds, and limited liability

1) 

Income tax expense

2) 

Interest expense

3) 

Depreciation expense

4) 

Insurance expense

1) 

A proprietary company limited by shares

2) 

A public company limited by shares

3) 

A public company limited by guarantee

4) 

A public No-liability company

1) 

$50 000.

2) 

$85 000.

3) 

$35 000.

4) 

$45 000.

1) 

the managers

2) 

the board of directors collectively

3) 

the individual directors

4) 

the shareholders

1) 

the time period assumption.

2) 

a financial year.

3) 

an interim period.

4) 

an economic year

1) 

A loan is received from a bank

2) 

Money is collected from a customer owing from goods sold last week

3) 

A sale is made on credit

4) 

Additional capital is contributed by the owner

1) 

presents the income and expenses of an entity for a specific period of time.

2) 

reports the changes in assets, liabilities and equity over a period of time.

3) 

reports the assets, liabilities and equity at a specific point in time.

4) 

summarises the change in retained earnings over a specific period of time.

1) 

Gross profit is equal to sales less cost of sales

2) 

An entity cannot be sustainable unless the gross profit is positive

3) 

Gross profit is applicable to manufacturing and retail businesses

4) 

Gross profit is equal to total income minus total expenses

1) 

Understatement in liabilities and an overstatement in profit

2) 

Overstatement in liabilities and an understatement in profit

3) 

Overstatement in assets and profit

4) 

Understatement in assets and profit

1) 

sales revenue

2) 

interest revenue

3) 

dividends received

4) 

unearned revenue

1) 

The income statement, the balance sheet and the statement of cash flows are all cash based

2) 

The income statement and the statement of cash flows are cash based and the balance sheet is accrual based

3) 

The income statement and the balance sheet are accrual based and the statement of cash flows is cash based

4) 

The income statement, the balance sheet and the statement of cash flows are all accrual based

1) 

supplies are ordered.

2) 

supplies are paid for.

3) 

at the end of the accounting period when a balance day adjustment is prepared for supplies used.

4) 

on a daily basis.

1) 

liabilities.

2) 

expenses.

3) 

income.

4) 

dividends

1) 

31 May

2) 

4 June

3) 

7 June

4) 

5 June

1) 

$18 000

2) 

$27 000

3) 

$7000

4) 

$20 000

1) 

liabilities will decrease.

2) 

assets will decrease.

3) 

assets will increase.

4) 

equity will increase.

1) 

whether the item will be turned into cash by the end of the accounting period.

2) 

whether the benefit extends into the next accounting period.

3) 

whether the payment is made in cash.

4) 

the amount of the transaction.

1) 

$120 000

2) 

$45 000

3) 

$48 750

4) 

$15 000

1) 

understatement in liabilities and an overstatement in profit.

2) 

overstatement in liabilities and an understatement in profit.

3) 

overstatement in assets and profit.

4) 

understatement in assets and profit.

1) 

interest paid

2) 

income tax paid

3) 

depreciation expense

4) 

all of the items would appear on a statement of cash flows

1) 

Operating

2) 

Financing

3) 

Investing

4) 

Financing or investing

1) 

Cash flows from financing activities

2) 

Cash flows from investing activities

3) 

Cash flows from operating activities

4) 

Each gives an equal estimation

1) 

of the relative difficulty in manipulating the statement of cash flows compared with manipulating the income statement

2) 

all the options are correct

3) 

the comparison of profit or loss to the cash flow from operating activities can highlight how an entity is managing its working capital requirements

4) 

lenders can use the statement of cash flows to ascertain management efficiency and the ability of the entity to generate cash flow

1) 

Cash from operating activities is higher than profit

2) 

Dividends paid are greater than cash flow from operations

3) 

A large amount has been spent on the acquisition of fixed assets

4) 

Proceeds from financing activities are used to finance investment activities

1) 

cash flows from operating activities

2) 

cash flows from investing activities

3) 

cash flows from financing activities

4) 

payment of dividends would not be included in the statement of cash flows

1) 

For an entity to survive, the net cash flow from operating activities should be positive.

2) 

For an entity to survive, the net cash flow from investing activities should be positive.

3) 

For an entity to survive, the net cash flow from financing activities should be positive.

4) 

For an entity to survive, the net cash flow from operating activities should be negative.

1) 

repayment of borrowings

2) 

proceeds from borrowings

3) 

proceeds from the issue of shares

4) 

all the item would be classified as financing activities

1) 

cash flows from financing activities, cash flows from operating activities, cash flows from investing activities

2) 

cash flows from operating activities, cash flows from investing activities, cash flows from financing activities

3) 

cash flows from investing activities, cash flows from financing activities, cash flows from operating activities

4) 

cash flows from investing activities, cash flows from operating activities, cash flows from financing activities

1) 

The income statement, the balance sheet and the statement of cash flows are all cash based

2) 

The income statement and the statement of cash flows are cash based and the balance sheet is accrual based

3) 

The income statement and the balance sheet are accrual based and the statement of cash flows is cash based

4) 

The income statement, the balance sheet and the statement of cash flows are all accrual based

1) 

interest paid.

2) 

receipts from the issue of shares.

3) 

receipts from the sale of investments.

4) 

dividends received.

1) 

operating activities

2) 

investing activities

3) 

financing activities

4) 

the reconciliation of profit with cash flow from operating activities

1) 

indicates problems in an entity's management of its non-current assets

2) 

may indicate a healthy growing business which needs to replace its assets as they wear out and purchase new assets to increase its future profits

3) 

is always an indicator that an entity is well managed

4) 

all the options are true

1) 

proceeds from repayment of loans to other parties

2) 

proceeds from the sale of plant and equipment

3) 

proceeds from a loan to the entity

4) 

payment for plant and equipment

1) 

show the deficit of cash during the period.

2) 

show the cash balance at the end of the period.

3) 

provide information about the profit or loss during the accounting period.

4) 

provide information about the cash receipts and cash payments made during the accounting period.

1) 

increase the asset cash; increase profit and loss to record income

2) 

increase the asset cash; decrease the liability debtors

3) 

increase the asset cash; decrease the asset debtors

4) 

decrease the asset cash; decrease the profit and loss

1) 

presents the income and expenses of an entity for a specific period of time.

2) 

reports the changes in assets, liabilities and equity over a period of time.

3) 

reports the assets, liabilities and equity at a specific point in time.

4) 

summarises the change in retained earnings over a specific period of time.

1) 

Dividend payable

2) 

Accounts payable

3) 

General reserve

4) 

Accrued expenses

1) 

providing services on credit

2) 

purchasing inventory on credit

3) 

signing a contract to hire a new employee

4) 

withdrawal of cash by the owner from the business bank account

1) 

It is decreased by profit

2) 

It is fixed at the amount initially contributed by the owners

3) 

It is the owners' claim on the net assets of the entity

4) 

It arises solely from the retained earnings of the entity

1) 

irrelevant.

2) 

income statement first.

3) 

balance sheet first.

4) 

both done simultaneously.

1) 

$145 000

2) 

$200 000

3) 

$95 000

4) 

$55 000

1) 

liabilities.

2) 

expenses.

3) 

income.

4) 

dividends.

1) 

in at least two different accounts.

2) 

in a journal and a ledger.

3) 

in two sets of books.

4)