accounts data bank

Chapter 12

Contemporary issues in financial reporting

1.Which of the following factors is not a defect of the traditional historical cost method of accounting

under inflationary conditions?

(a) Assets which have not been revalued are recorded at historic cost.

(b) Debtors and other monetary assets lose value with inflation.

(c) Asset values are objectively recorded at historic cost.

(d) Depreciation charges tend to be understated if based on the historic cost of fixed assets.

2.FRS 10 deals with accounting for goodwill. Which of the following is an acceptable treatment of

purchased goodwill?

(a) Include under fixed assets, permanently, on the balance sheet.

(b) Include under intangible assets, permanently, on the balance sheet.

(c) Amortize on a systematic basis over the life of an asset.

(d) Write off immediately following acquisition by deducting from share capital.

3.Which of the following factors is likely to be an area of difficulty in a large multinational group of

companies?

(a) Compliance with international accounting standards.

(b) Foreign currency translation.

(c) The preparation of the group financial statements.

(d) All of the above.

Accounting for Non-Accounting Students, 5th edition,Lecturer’s Guide. © Pearson Education Limited 2001115

Chapter 13

The framework of management accounting

1.The main purpose of a management accounting system is to:

(a) Provide information for the financial accounting function.

(b) Protect the senior staff from criticism.

(c) Comply with the Companies Act 1985.

(d) To supply data and information to management.

2.Which of the following is not a major function of management accounting?

(a) Human resource management.

(b) Budgeting.

(c) Cost accounting.

(d) Internal auditing.

3.Which of the following statements is true?

(a) Amanagement accountant should instruct other staff what to do.

(b) Amanagement accountant provides a service for other managers.

(c) Amanagement accountant must remain aloof from other staff.

(d) A management accountant’s job is largely to crunch numbers.

4.Which of the following items is not an essential ingredient of a planning and control system?

(a) A clear statement of the entity’s objectives.

(b) A detailed budget for each department.

(c) Disciplinary action when actual costs exceed budgeted costs.

(d) A formalized organizational managerial structure.

Chapter 14

Cost accounting

1.Which of the following is likely to be classified as a direct material cost of a motor car wheel?

(a) The metal used to manufacture it.

(b) The metal used to manufacture one of the tools used in the car wheel factory.

(c) The cost of operating the raw material stores in the factory.

(d) The cost of the quality operation on the finished car wheels.

2.The first in, first out method of pricing raw material issues, exhibits which one of the following

features?

(a) The issue price is recalculated each time new deliveries are made into stock.

(b) The issue price is always at the latest price.

(c) The goods are always issued strictly in the physical order in which they are received.

(d) The issue price is always at the earliest price.

3.Which of the following is not a method of pricing raw material issues from stock?

(a) Standard costing.

(b) Unit cost.

(c) Marginal cost.

(d) Continuous weighted average.

4.Which of the following is a direct labour cost?

(a) Supervisors’ salaries in the factory.

(b) Costs of the payroll accounting section.

(c) A bonus paid to the storeman.

(d) The wages of an operative paid on the basis of output achieved.

5.Production overheads are absorbed into production units by the use of an overhead absorption

rate. Which one of the following best describes how the absorption rate is calculated?

(a) Total number of units produced divided by the total cost centre overheads.

(b) Total number of units produced multiplied by the unit overhead cost.

(c) Total cost centre overheads divided by the cost centre activity level.

(d) Total indirect costs for the business divided by the total number of units produced.

6.XYZ Ltd has a labour intensive assembly department. Which of the following methods of absorbing

overheads is likely to used for that department?

(a) Direct labour hours method.

(b) Direct labour cost method.

(c) Direct material cost method.

(d) A percentage of prime cost.

7.XYZ Ltd has the following data relating to its assembly plant in the year ended 31 December 2001:

£000

Direct material costs 500

Direct labour cost 250

Assembly plant indirect costs 100

In addition, the stores department has total costs of £30 000 and spends 50% of its time servicing

the assembly plant. There were 50 000 labour hours worked and 25 000 machine hours run in the

assembly plant in 2001.

The overhead cost per direct labour hour was:

(a) £2.

(b) £4.

(c) £2.3.

(d) £4.6.

8.If a company uses predetermined overhead recovery rates and at the end of a period finds that

there has been an under-recovery of overhead, which of the following best explains how the underrecovery

has occurred?

(a) Actual overhead cost has exceeded the amount used as a basis for the establishment of the

predetermined rate.

(b) Actual overhead cost has been less than the amount used as a basis for the establishment of the

predetermined rate.

(c) Actual activity levels were higher than planned due to an increase in demand.

(d) An expected price increase in the overhead costs which was built into the overhead recovery

rate did not take place.

9. If there has been an over recovery of overheads, at the end of the accounting period the amount

concerned should be?

(a) Debited to the company profit and loss account.

(b) Credited to the company profit and loss account.

(c) Carried forward to the next accounting period as a cost saving.

(d) Used to reduce next period’s overhead recovery rate.

118 Accounting for Non-Accounting Students, 5th edition,Lecturer’s Guide. © Pearson Education Limited 2001