WorksheetsACCA F7 - Question Bank
Total questions: 37
Worksheet time: 45mins
The ratio - Average Collection Period - shows:
the average amount of time needed to pay accounts payable
how many times the company turns over its inventory per year.
the proportion of total assets financed by the firm’s creditors
the average amount of time needed to collect accounts receivable
Goal activity of the company connected with the maximization of wealth owners, it is:
maximize profit
survival of the company
maintain solvency
maintaining liquidity
Conservative strategy of receivables:
means long payment periods
the consequence of such a policy can be a significant increase in sales
the company expects its customers' strict adherence to payment terms are rather short
is used when introduced a new product
In which part of financial statement you can find information about accounting policies, procedures, calculations and transactions underlying entities in financial statement:
balance sheet
notes to the financial statement
cash flow
income statement
Positive rating companies on the capital market means:
additional capital for development purposes
the loss of external sources of financing
risk of acquisition of controlling stake in the competition
loss of independence
Net assets turnover is 5. It means that every PLN 150 invested in net assets generate PLN 750 sales revenue.
true
false
true, when the average age of inventor is 6
none of these answers is correct
In the statement of cash flows, if none of the activity provide excess cash, this means that:
occur restructuring processes in the company
the firm is characterized by high liquidity
if this situation will continue for a long time, it is a significant probability of bankruptcy entity
the company has a transition unprofitability operational activities
Gearing ratio informs about:
financing asset by equity
financing assets by debt
relation - the equity in external capital
interest cover by profit before tax
Average collection period is 36 days. It informs that:
the company repays its debts at 36 days
one cycle of receivables collection takes 36 days
company reclaims its receivables at 36 days
What is the cash ratio if the quick ratio is 0.75 and receivables are two times lower than current liabilities?
0,21
0,25
0,28
0,3
Ratio analysis allows:
an evaluation of past, present and anticipate the future results of the company
identification of the areas the company improperly managed and potentially dangerous
evaluating the financial condition of the entity in a short time and predict whether its financial condition allows expansion in the long term
all answers are correct
Average payment period is 65. It means that:
this is the average period of trade credit
liabilities to suppliers of the company are regulated every 65 days
65 times a year are renewed liabilities
liabilities are paid every 65 days
Current ratio:
is referred to as the liquidity of the second degree
is a measure of assessing the ability of the company to pay off its current liabilities
is a measure of a company's ability to repay short-term liabilities till 3 months
expresses the company's ability to regulate all the liabilities
Indicator, which primarily interested shareholders, allowing to determine the rate of profit, which brings investment in the enterprise, is:
return on assets ROA
return on common equity ROE
return on sales ROS
current ratio
Liquidity:
indicates the level of business debt
shows if company can regulate short-term liabilities on time
measures the return earned on the common stockholders’ investment in the firm
shows the effectiveness of firms' operations
Which of the following items are included in the calculation of the cash conversion cycle (operating cycle)?
Inventory days
Payables days
Receivables days
Settlement discount period
The operating cycle of an organisation would shorten under which of the following combinations of changes?
Inventory days - Increase
Receivables days - Increase
Payables days - Increase
Inventory days - Decrease
Receivables days - Decrease
Payables days - Increase
Inventory days - Increase
Receivables days - Decrease
Payables days - Increase
Inventory days - Decrease
Receivables days - Decrease
Payables days - Decrease
Which of the following ratios would most likely be used by management to evaluate short-term liquidity?
Return on total assets
Financial gearing
Accounts receivables turnover
Acid test (quick) ratio
Crag Co has sales of $200m per year and the gross profit margin is 40%. Finished goods inventory days vary
throughout the year within the following range:
Inventory (days)
Maximum 120
Minimum 90
All purchases and sales are made on a cash basis and no inventory of raw materials or work in progress is carried.
Crag Co intends to finance permanent current assets with equity and fluctuating current assets with its overdraft.
In relation to finished goods inventory and assuming a 360-day year, how much finance will be needed from the overdraft?
$10m
$17m
$30m
$40m
The following information has been extracted from a company’s financial records:
Cash
Opening balance 3,900
Closing balance 3,000
Cash equivalents
Opening balance 3,800
Closing balance 4,400
Accounts receivable
Opening balance 14,600
Closing balance 12,900
Total current assets
Opening balance 22,300
Closing balance 20,300
Revenues 103,200
Expenses 20,430
Net income 82,770
What is the company’s receivable turnover?
6.0 times
7.1 times
7.5 times
8.0 times
Which of the following statements about a not-for-profit entity is valid?
There is no requirement to calculate an earnings per share figure as it is not likely to have shareholders who need to assess its earnings performance
The current value of its property, plant and equipment is not relevant as it is not a commercial entity
Interpretation of its financial performance using ratio analysis is meaningless
Its financial statements will not be closely scrutinised as it does not have any investors
Which of the following ratios is likely to be most relevant for a local charity?
Operating profit margin
Current ratio
Earnings per share
Return on capital employed
Which ONE of the following is not a limitation of applying ratio analysis to published financial statements?
Accounting policy choices can limit comparability between different companies
Financial statements may contain errors
Information within published financial statements is historic and out of date
Different ways of calculating certain ratios exist
The following information has been taken from Preston’s financial statements for the year-ended 31 December 20X7:
Preston has inventory turnover of six times
The year-end receivables collection period is 42 days
Cost of sales for the year was $1,690,000
Credit purchases for the year were $2,150,000
Preston’s cash cycle at 31 December 20X7 was 68 days
All calculations should be made to the nearest full day, and the trading year has 365 days.
What is Preston’s trade payables collection period as at 31 December 20X7?
35 days
17 days
138 days
26 days
The following extracts of the financial statements of Wiggo have been obtained:
Revenue $980,000
Cost of sales ($530,000)
Operating expenses ($210,000)
Equity $600,000
Loan, repayable 20X8 $300,000
Deferred tax $44,000
Payables $46,000
What is the return on capital employed of Wiggo?
24.2%
25.4%
26.7%
50%
The following extracts of the financial statements of Wiggo have been obtained:
20X5
Inventories $130,000
Receivables $80,000
Cash $10,000
Loan repayable 20X8 $90,000
Payables $70,000
Overdraft $34,000
What is the quick ratio of Wiggo?
0.76
0.87
1.86
2.12
Which ONE of the following explanations is unlikely to lead an increase in receivables collection period?
A new contract with a large customer has been won following a competitive tender
A large one-off credit sale has been completed before the year end
Difficult economic conditions have led to some customers struggling to pay on time
A website has been opened in the year for trade direct to the public
Which ONE of the following items is unlikely to be considered a ‘one-off’ item which would impact the comparability of ratios?
A new website selling direct to the public has meant that deliveries are now made to more diverse geographical areas, increasing delivery costs
A closure of a department has led to redundancies
Sale of surplus property leading to a profit on disposal
A storm in the year led to significant damage to the warehouse
KRL is a company which manufactures pharmaceuticals, and is investigating a proposed takeover of another entity which is based overseas.
KRL has performed a benchmarking, exercise based on the financial statements of the overseas entity, and thinks this entity would fit in with it strategically.
Which ONE of the following would KRL be unlikely to be able to use in order to make the decision?
Internal business plans of the takeover target
Details of the overseas country in which the target entity operates
Press reports of the target entity
Recent financial statements of the entity
Which ONE of the following is not a valid reason for a decrease in gross profit margin?
A major customer renewed their contract during the year following a competitive tender process
New plant and equipment used in the manufacturing process has been purchased in the year, which has increased the depreciation expense
Delivery costs to customers have risen following an increase in the rates charged by couriers
A national recession has led to sales prices being cut in response
Marcel Co has calculated that its current year Price Earnings (P/E) ratio is 12.6.
The sector average P/E ratio is 10.5.
Which ONE of the following would be an explanation of the difference between Marcel’s P/E ratio and the sector average?
Marcel is seen as a less risky investment than the sector average, and there is higher confidence about the future prospects of Marcel
Marcel is seen as a more risky investment than the sector average, however there is higher confidence about the future prospects of Marcel
Marcel is seen as a less risky investment than the sector average, however there is low confidence about the future prospects of Marcel
Marcel is seen as a more risky investment than the sector average, and there is low confidence about the future prospects of Marcel
Apollo Co took out a new loan on 1st January 20X6. This loan carries an effective interest rate of 8%. The initial proceeds of the loan are $2.5m, which is after paying issue costs of $250k. The coupon rate on the loan is 6%. Apollo must keep to an interest cover ratio of 9 times under the arrangements made with the bank. What operating profit must be maintained by Apollo in the year ended 31st December 20X6, in order to meet the minimum interest cover ratio specified by the bank?
$1,350,000
$1,800,000
$450,000
$1,980,000
Rogers Co has just completed their financial statements for the year ended 30 June 20X6. They are reporting a net profit of $1,250,000 for the current year, and they have $1 million 50 cent shares in issue. The current market price of Roger’s shares is $3.50.
Rogers Co has total dividends during the year ended 30 June 20X6 of $ 1,500,000.
What is the Price Earnings (P/E) ratio of Rogers Co for the year ended 30 June 20X6?
4.7 times
5.6 times
2.8 times
0.18 times
Rogers Co has just completed their financial statements for the year ended 30 June 20X6. They are reporting a net profit of $1,250,000 for the current year, and they have $1 million 50 cent shares in issue. The current market price of Roger’s shares is $3.50.
Rogers Co has total dividends during the year ended 30 June 20X6 of $ 1,500,000.
What is the Dividend Yield of Rogers Co for the year ended 30 June 20X6?
42.9%
46.7%
35.7%
21.4%
Lepchem is a pharmaceutical company which was launched in September 20X1. Lepchem have been funded through bank loans and equity investment. Lepchem’s aim is to develop new pharmaceuticals which could then be sold for a high margin. So far, Lepchem have not managed to successfully develop or sell any pharmaceuticals. Which ratio is likely to be the most relevant for Lepchem for the year to 31 December 20X1?
Current ratio
Gross profit margin
Operating profit margin
Receivables collection period
Which ONE of the following is not likely to be a criterion under which a not-for-profit is judged in terms of value for money?
The management of resources
The success in achieving the organisation’s stated aims
The return given to investors
How well costs are being managed
Which ONE of the following measures is likely to be the least relevant to a property management company which rents out properties to businesses?
Non-current asset turnover
Return on capital employed
Average rent earned
Inventory turnover period
