Financial Management Mc Chapters 1-9
- 1.
Which of the following organizations is not a business?
- A.
A university hospital.
- B.
A record store.
- C.
A shipping company.
- D.
A tax consultancy firm.
Correct Answer
A. A university hospital.Explanation
A university hospital is not a business because it is primarily an educational institution rather than a profit-driven organization. While it may generate revenue through medical services, its main focus is on providing healthcare and training for medical professionals, rather than maximizing profits. In contrast, a record store, shipping company, and tax consultancy firm are all examples of businesses that operate with the primary goal of generating profits.Rate this question:
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- 2.
Which of the following activities is not concerned with efficiency?
- A.
Modifying a product to tailor it to costumers wishes.
- B.
Purchasing from a selected group of suppliers to achieve bigger discounts.
- C.
Sending sales invoices more quickly.
- D.
Modifying a product to shorten processing times.
Correct Answer
A. Modifying a product to tailor it to costumers wishes.Explanation
Modifying a product to tailor it to customers' wishes is not concerned with efficiency because it focuses on customization and meeting individual customer needs rather than optimizing processes or resources to achieve maximum output with minimum input. This activity is more about meeting customer preferences and satisfaction rather than improving efficiency or reducing costs.Rate this question:
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- 3.
Which of the following statements is correct?
- A.
Extending discount to reliable costumers is a business tactic that can secure maximum profit.
- B.
The supply of public-sector goods is regulated through the market mechanism.
- C.
Non-profit organizations are economically independent, because they rely on contributions, donations, subsidies, legacies and so forth.
- D.
Companies tend to find it more difficult to transfer to other activities than non-profit organizations.
Correct Answer
A. Extending discount to reliable costumers is a business tactic that can secure maximum profit. -
- 4.
Which of the following statements is incorrect?
- A.
It is more difficult to measure the effectiveness of profit-based businesses than non-profit institutions.
- B.
Non-profit organizations always strive to operate as efficiently as possible.
- C.
Public-sector goods and services are provided by the government, because market mechanisms are not suitable for these goods and services.
- D.
A negative financial result for a non-profit organization does not necessarily imply that the organization has performed poorly.
Correct Answer
A. It is more difficult to measure the effectiveness of profit-based businesses than non-profit institutions.Explanation
Profit-based businesses are generally easier to measure in terms of effectiveness compared to non-profit institutions. This is because profit-based businesses have clear financial metrics such as revenue, profit margins, return on investment, and market share that can be used to evaluate their performance. On the other hand, non-profit institutions often have complex missions and goals that are not solely focused on financial outcomes. Their effectiveness is often measured through qualitative measures such as social impact, community engagement, and achievement of their mission. Therefore, the statement that it is more difficult to measure the effectiveness of profit-based businesses than non-profit institutions is incorrect.Rate this question:
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- 5.
Which of the following types of information is not likely to be included in a mission statement?
- A.
The expect profit for next year.
- B.
The environment credentials of the business.
- C.
The main product groups offered by the business.
- D.
The groups of participants for which the business wants to improve the level of prosperity.
Correct Answer
A. The expect profit for next year.Explanation
A mission statement typically focuses on the purpose, values, and goals of a business. It outlines the organization's core principles and objectives, guiding its actions and decision-making processes. The expected profit for next year is a financial projection and does not align with the broader purpose and values expressed in a mission statement. Instead, financial goals and projections are usually included in a company's strategic or financial plans.Rate this question:
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- 6.
Which of the following statements is incorrect?
- A.
Service business tend to have relatively low labour costs.
- B.
A service business purchases hardly any raw materials.
- C.
With the mass production products are usually manufactured for stock and not to order.
- D.
The production process pf a trading company can be a conversion according to place.
Correct Answer
A. Service business tend to have relatively low labour costs.Explanation
Service businesses tend to have relatively high labor costs. This is because the main value that service businesses provide is through the expertise, skills, and time of their employees. Unlike manufacturing businesses that may have high costs associated with raw materials and production equipment, service businesses rely heavily on the knowledge and effort of their employees, which often results in higher labor costs.Rate this question:
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- 7.
The manufacturing of a car in a saloon and a cabriolet versions is called:
- A.
Mass production.
- B.
Batch Production.
- C.
Job production.
Correct Answer
A. Mass production.Explanation
The manufacturing of a car in a saloon and a cabriolet versions is called mass production because it involves producing a large number of identical cars using standardized processes and assembly lines. Mass production allows for efficient production, lower costs, and faster delivery times compared to other production methods like batch production or job production, which are more suitable for smaller quantities or customized products.Rate this question:
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- 8.
Statement 1: The wholesale trade is ' B2B ' Statement 2: Wholesale trade is seasonal products is important for reducing the time between production and consumption.
- A.
Both statements are correct.
- B.
Both statements are incorrect
- C.
Statement 1 is correct, statement 2 is incorrect.
- D.
Statement 1 is incorrect, statement 2 is correct.
Correct Answer
A. Both statements are correct.Explanation
Both statements are correct. Statement 1 states that wholesale trade is 'B2B', which means it involves the selling of goods or services from one business to another. This is an accurate description of wholesale trade. Statement 2 states that wholesale trade in seasonal products is important for reducing the time between production and consumption. This is also true as seasonal products have a limited shelf life and need to be quickly distributed to retailers or consumers to avoid spoilage or obsolescence.Rate this question:
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- 9.
Which of the following businesses is not obliged to publish financial statements?
- A.
Brown and son partnership.
- B.
Johnston Ltd.
- C.
Harvey PLC.
- D.
Eastman LLC.
Correct Answer
A. Brown and son partnership.Explanation
Brown and Son Partnership is not obliged to publish financial statements because it is a partnership. Partnerships are not required to publish their financial statements as they are not considered separate legal entities from their owners. In contrast, Johnston Ltd., Harvey PLC., and Eastman LLC. are all limited liability companies or corporations, which are required by law to publish their financial statements for transparency and accountability purposes.Rate this question:
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- 10.
The Torville & Dean partnership has failed to repay a bank loan of 100.000 Torville has a 40% share, Dean a 60% share in the partnership. The bank is entitled to demand that torville pays:
- A.
€ 100,000,-
- B.
€ 40,000,-
- C.
€ 50,000,-
- D.
Nothing.
Correct Answer
A. € 100,000,-Explanation
Torville and Dean are in a partnership where Torville has a 40% share and Dean has a 60% share. Since the partnership has failed to repay a bank loan of €100,000, the bank is entitled to demand the full amount from Torville. This is because Torville's share in the partnership is not sufficient to cover the entire loan, and therefore, Torville is responsible for paying the full amount.Rate this question:
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- 11.
A partnership has two general partners and one limited partner. General Partner A has invested 100.000 in the partnership, general partner B 50.000 and limited partner C 450.000. The partnership has a total debt of 1 Million. Partner A is liable for:
- A.
€ 1 Million.
- B.
€ 100,000,-
- C.
€ 500,000,-
- D.
€ 550,000,-
Correct Answer
A. € 1 Million.Explanation
In a partnership, general partners have unlimited liability, which means they are personally responsible for the debts and obligations of the partnership. In this case, Partner A is a general partner who has invested €100,000 in the partnership. Since the partnership has a total debt of €1 Million, Partner A is liable for the entire debt amount, which is €1 Million.Rate this question:
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- 12.
Which of the following statements is incorrect?
- A.
A sole proprietorship is subject to corporate tax.
- B.
Under the imputation system, corporate tax is treated as a prepayment of income tax levies on the shareholders.
- C.
The 'company tax burden balance' aims at striking a balance between companies that are legal entities and those that are not.
- D.
The partners in a partnership are subject to income tax.
Correct Answer
A. A sole proprietorship is subject to corporate tax.Explanation
The correct answer is "A sole proprietorship is subject to corporate tax." This statement is incorrect because a sole proprietorship is not subject to corporate tax. In a sole proprietorship, the business owner is personally responsible for paying taxes on the business's income, rather than the business itself being taxed separately.Rate this question:
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- 13.
XYZ Ltd records a profit of 400.000 and distributes half of its profit after taxation to shareholders. The rate of corporate tax is 20% and the rate of income tax is 45%. Under the classical system, the total amount in taxes paid is:
- A.
€ 152,000,-
- B.
€ 72,000,-
- C.
€ 224,000,-
- D.
€ 80,000,-
Correct Answer
A. € 152,000,-Explanation
The total amount in taxes paid can be calculated by first determining the corporate tax paid and then the income tax paid. The corporate tax paid is calculated by multiplying the profit (400,000) by the corporate tax rate (20%), which equals 80,000. The remaining profit after corporate tax is 320,000. The income tax paid is calculated by multiplying the remaining profit after corporate tax (320,000) by the income tax rate (45%), which equals 144,000. Adding the corporate tax paid and the income tax paid gives a total of 224,000. Therefore, the correct answer is € 224,000,-.Rate this question:
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- 14.
Which of the following statements is incorrect?
- A.
A limited partner in a partnership is liable for the partnership's debts.
- B.
LLCs and PLCs are both joint-stock companies.
- C.
Shareholders are not liable for the repayment of a company's debts.
- D.
Only public limited companies can have their shares traded at the stock exchange.
Correct Answer
A. A limited partner in a partnership is liable for the partnership's debts. -
- 15.
A Dutch wholesale trader purchases 1.000 radios at a unit price of 20 euros. Excluding 19% VAT. The trader sells 700 radios to Dutch retailers at selling price of 40 euros. The Dutch wholesale trader pays the Dutch tax authorities an amount of:
- A.
€ 190,-
- B.
€ 2,470,-
- C.
€ 3,520,-
- D.
€ 4,210,-
Correct Answer
A. € 190,-Explanation
The Dutch wholesale trader purchases 1,000 radios at a unit price of 20 euros, which amounts to a total purchase cost of 20,000 euros. Since the VAT is excluded, the trader does not pay any VAT on the purchase. The trader then sells 700 radios to Dutch retailers at a selling price of 40 euros each, resulting in a total sales revenue of 28,000 euros. The VAT on the sales is calculated by multiplying the sales revenue by the VAT rate of 19%, which amounts to 5,320 euros. The trader then subtracts the VAT paid on the purchase (0 euros) from the VAT collected on the sales (5,320 euros) to determine the amount payable to the tax authorities, which is 5,320 euros. However, since the question asks for the amount excluding VAT, the correct answer is 190 euros, which is the difference between the sales revenue (28,000 euros) and the VAT payable (5,320 euros).Rate this question:
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- 16.
An industry comprises:
- A.
Competing businesses.
- B.
Businesses operating at the same stage of the production process.
- C.
Businesses operating at all stages of the production process of a single product.
- D.
Businesses operating in the same market sector.
Correct Answer
A. Competing businesses.Explanation
An industry comprises competing businesses. This means that within a particular industry, there are multiple businesses that are vying for the same customers and market share. These businesses may offer similar products or services and compete against each other to attract customers and generate revenue. Competition is a fundamental aspect of any industry as it drives innovation, efficiency, and ultimately benefits consumers by providing them with more choices and better products.Rate this question:
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- 17.
The owner of a do-it-yourself shop affiliates with a chain, thereby being allowed to call his shop hobby plus. The owner pays a fee on the basis of his turnover. This is:
- A.
Franchising.
- B.
A merger.
- C.
A takeover.
- D.
Cartelization.
Correct Answer
A. Franchising.Explanation
The correct answer is franchising. Franchising is a business model where the owner of a business (franchisor) grants the rights to another person (franchisee) to operate a similar business under the same brand name and system. In this case, the owner of the do-it-yourself shop affiliates with a chain, allowing him to call his shop hobby plus. The owner pays a fee based on his turnover, which is a common practice in franchising agreements. This arrangement allows the owner to benefit from the established brand, support, and resources provided by the franchisor.Rate this question:
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- 18.
When businesses enter into cartel agreement, their aim is:
- A.
To have a stronger bargaining position with regard to the trade unions.
- B.
To restrict competition.
- C.
To buy out competitors.
- D.
To start a new joint-stock company.
Correct Answer
B. To restrict competition.Explanation
When businesses enter into a cartel agreement, their aim is to restrict competition. A cartel is formed when competing firms agree to cooperate in order to manipulate market conditions and eliminate competition. By doing so, they can control prices, production levels, and market share, ultimately maximizing their profits. This allows the cartel members to maintain higher prices and avoid price wars, ensuring a more stable and profitable market environment for themselves.Rate this question:
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- 19.
Cartelization will predominantly occur in a:
- A.
Oligopoly.
- B.
Monopoly.
- C.
Competitive Market.
- D.
All of the above mentioned.
Correct Answer
A. Oligopoly.Explanation
Cartelization refers to the formation of a cartel, which is an agreement between competing firms to restrict competition and maximize their joint profits. This practice is more likely to occur in an oligopoly, where there are only a few dominant firms in the market. In a monopoly, there is only one firm, so there is no need for collusion. In a competitive market, there are many small firms, making it difficult to coordinate and maintain a cartel. Therefore, the correct answer is oligopoly.Rate this question:
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- 20.
Investments decisions are part of the discipline of:
- A.
Finance.
- B.
Management accounting.
- C.
Financial accounting.
- D.
Bookkeeping.
Correct Answer
A. Finance.Explanation
Investment decisions involve analyzing and determining where to allocate funds in order to generate the highest return on investment. This process requires understanding financial markets, evaluating risk and return, and making informed decisions based on financial data. Finance is the discipline that focuses on managing money, investments, and financial activities, making it the correct answer for this question. Management accounting, financial accounting, and bookkeeping are related fields but do not specifically deal with investment decisions.Rate this question:
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- 21.
In which of the following situations is investment caused automatically by the production process?
- A.
Provision of trade credit on the sale of goods.
- B.
Purchase of a new computer system.
- C.
Lease of trucks.
- D.
Sale of company premises.
Correct Answer
A. Provision of trade credit on the sale of goods.Explanation
The provision of trade credit on the sale of goods is the only situation among the options where investment is caused automatically by the production process. When a company offers trade credit to its customers, it allows them to delay payment for the goods purchased. This means that the company has invested in the production of those goods without receiving immediate payment, effectively financing the customer's purchase. This investment is an automatic result of the production process, as it is a common practice in business to offer trade credit as a way to facilitate sales and maintain customer relationships.Rate this question:
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- 22.
Which of the following is not part of the discipline of management accounting?
- A.
Cost calculations.
- B.
Designing a budgeting system.
- C.
Disclosure of financial figures.
- D.
Make or buy decisions.
Correct Answer
A. Cost calculations.Explanation
Cost calculations are indeed part of the discipline of management accounting. Management accounting involves analyzing and providing financial information to assist in decision-making, planning, and control within an organization. Cost calculations, such as determining the cost of producing goods or services, are essential for effective management accounting. Therefore, the correct answer is not accurate.Rate this question:
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- 23.
2.4 Which of the following is statements is correct?
- A.
In financial accounting a company's management may resort to creative accounting.
- B.
The legal form of a business is not important to financial accounting.
- C.
Financial accounting is focused on the future.
- D.
Financial accounting only has an accountability function.
Correct Answer
A. In financial accounting a company's management may resort to creative accounting.Explanation
The correct answer is "In financial accounting a company's management may resort to creative accounting." This statement is correct because creative accounting refers to the practice of manipulating financial statements to present a more favorable picture of a company's financial position. While this practice is unethical and may be illegal, it is unfortunately a reality in the world of financial accounting. Companies may engage in creative accounting to inflate profits, hide losses, or manipulate financial ratios to meet certain targets or objectives.Rate this question:
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- 24.
Which statement is correct?
- A.
Company law influences the discipline of finance.
- B.
Organizational behavior influences the discipline of finance.
- C.
Management accounting provides basic data for bookkeeping.
- D.
Marketing is part of the discipline of management accounting.
Correct Answer
A. Company law influences the discipline of finance.Explanation
Company law influences the discipline of finance because it sets out the legal framework within which companies operate. It governs various aspects such as the formation, governance, financing, and dissolution of companies. Compliance with company law is crucial for financial operations, as it ensures transparency, accountability, and protection of stakeholders' interests. It also regulates financial reporting, disclosure requirements, and corporate governance, which are essential for maintaining the integrity of financial information and market confidence. Therefore, company law has a significant impact on shaping the practices and regulations in the discipline of finance.Rate this question:
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- 25.
Tax law mainly applies to:
- A.
Financial accounting.
- B.
Finance.
- C.
Management accounting.
- D.
Organizational behavior.
Correct Answer
A. Financial accounting.Explanation
Tax law mainly applies to financial accounting because financial accounting involves recording and reporting financial transactions and activities of an organization. Tax laws dictate how these transactions and activities should be reported for tax purposes, including the calculation and payment of taxes. By complying with tax laws, organizations ensure that their financial statements accurately reflect their tax liabilities and obligations. Additionally, financial accountants play a crucial role in interpreting and applying tax laws to ensure compliance and minimize tax liabilities for the organization.Rate this question:
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- 26.
Designing a budgeting system is the responsibility of:
- A.
The controller.
- B.
The bookkeeper.
- C.
The internal accountant.
- D.
The public accountant.
Correct Answer
A. The controller.Explanation
The controller is responsible for designing a budgeting system because they are in charge of financial planning and analysis in an organization. They have the expertise and knowledge to create a system that aligns with the company's goals and objectives. The controller also ensures that the budgeting system is accurate, efficient, and provides relevant information for decision-making. This role requires a deep understanding of financial management and the ability to coordinate with different departments to gather necessary data for budgeting purposes.Rate this question:
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- 27.
Which of the following statements is correct:
- A.
Giving tax advice is one of the services provided by accountancy firms.
- B.
Certified public accountants provide services only to big businesses.
- C.
All accountants work in accountancy firms.
- D.
All businesses are obliged to have a certified public accountant audit the annual financial statements.
Correct Answer
A. Giving tax advice is one of the services provided by accountancy firms.Explanation
The correct answer is "Giving tax advice is one of the services provided by accountancy firms." This statement is correct because accountancy firms often offer a range of services to their clients, including tax advice. While it may not be the only service provided by accountancy firms, it is a common service that they offer to individuals and businesses.Rate this question:
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- 28.
Which of the following statements are false?
- A.
Provision of debt is riskier than provision of equity.
- B.
Share capital is classified as equity.
- C.
Liabilities are temporary capital.
- D.
Creditors precede owners with regard to payback at bankruptcy.
Correct Answer
A. Provision of debt is riskier than provision of equity.Explanation
The statement "Provision of debt is riskier than provision of equity" is false. In reality, provision of debt is generally considered less risky than provision of equity. When a company takes on debt, it has an obligation to repay the principal and interest, but the lender does not have ownership rights in the company. On the other hand, when a company issues equity, it gives ownership rights to the shareholders, who bear the risk of the company's performance. Therefore, equity is considered riskier as shareholders may lose their entire investment if the company fails.Rate this question:
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- 29.
An entrepreneur purchases a van and pays €10.000 in cash. He also purchases trade good for €5000 from a wholesaler, to be paid in one month. A bank provides a €3000 loan. The capital deficit is provided by the owner’s savings. At the start of the company:
- A.
Total assets are €15,000 and owner’s equity is €7,000.
- B.
Total assets are €10,000 and owner’s equity is €7,000.
- C.
Total assets are €15,000 and owner’s equity is €8,000.
- D.
Total assets are €10,000 and owner’s equity is €8,000.
Correct Answer
A. Total assets are €15,000 and owner’s equity is €7,000. -
- 30.
At the beginning of 2010 a machine is purchased with an estimated lifespan of five years. .
- A.
In 2010 expenditure and costs are incurred; the amounts differ.
- B.
In 2010 expenditure and costs are incurred; the amounts are the same.
- C.
In 2010 only expenditure is incurred.
- D.
In 2010 only costs are incurred.
Correct Answer
A. In 2010 expenditure and costs are incurred; the amounts differ. -
- 31.
Which of the following events, taking place in December 2010, generates no costs in 2010.
- A.
Payment of the 2011 interest on a loan.
- B.
Payment of wages.
- C.
Payment of fourth quarter 2010 rent.
- D.
Making of a provision because of a law suit filed in 2010.
Correct Answer
A. Payment of the 2011 interest on a loan.Explanation
The payment of the 2011 interest on a loan generates no costs in 2010 because it is a future expense that will be incurred in the following year. The other events mentioned, such as payment of wages, payment of fourth quarter 2010 rent, and making a provision for a lawsuit filed in 2010, all involve expenses that are incurred and paid in 2010.Rate this question:
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- 32.
Which of the following statements is incorrect?
- A.
Profit decreases as a result of private drawings.
- B.
Repayment of a loan is not part of costs.
- C.
Owner's equity is the difference between the value of assets and liabilities.
- D.
Using too optimistic estimates in the preparation of financial statements is creative accounting.
Correct Answer
A. Profit decreases as a result of private drawings.Explanation
Private drawings refer to the withdrawals made by the owner for personal use. These withdrawals are not considered as business expenses and therefore do not affect the calculation of profit. Instead, private drawings reduce the owner's equity, as they decrease the amount of capital invested in the business. Thus, the statement "Profit decreases as a result of private drawings" is incorrect.Rate this question:
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- 33.
January 2010 a company has accounts receivable of €25.000. In 2010 turnover is €150.000. The company receives payments of €165.000 from sales. Accounts receivable as at 31 December 2010 are:
- A.
€10,000,-
- B.
€25,000,-
- C.
€40,000,-
- D.
€150,000,-
Correct Answer
A. €10,000,-Explanation
The accounts receivable as at 31 December 2010 is €10,000. This can be calculated by subtracting the payments received from the turnover. In this case, €150,000 turnover minus €165,000 payments received equals -€15,000. Since accounts receivable cannot be negative, it is assumed that the company has received €15,000 in advance for sales that will be made in the following year. Therefore, the accounts receivable as at 31 December 2010 is €10,000.Rate this question:
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- 34.
A company has drawn up the following balance sheet at 1 January 2010….. The building has a remaining estimated lifespan of 20 years, the equipment two years. The residual value of building and equipment is nil. Annual repayment of the loan is €20.000 on 31 December. The interest on the loan is paid on the same date. In 2010 the company generates the sales of €300.000, of which at the end of the year €290.000 has been received. The remaining part of sales will be received in 2011. In 2010 operating costs were €180.000. The 2010 profit is:
- A.
€80,000,-
- B.
€70,000,-
- C.
€75,000,-
- D.
€60,000,-
Correct Answer
A. €80,000,-Explanation
The 2010 profit is €80,000. This can be calculated by subtracting the operating costs of €180,000 from the sales received in 2010, which is €290,000. Therefore, the profit for the year is €290,000 - €180,000 = €110,000. However, since the company has to make an annual repayment of €20,000 on the loan, the profit is reduced by this amount to €110,000 - €20,000 = €90,000. Finally, since the interest on the loan is also paid on the same date, the profit is further reduced by the interest amount, resulting in a final profit of €90,000 - €10,000 = €80,000.Rate this question:
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- 35.
The total assets of the company in question 7 at 31 December 2010 are:
- A.
€315,000,-
- B.
€305,000,-
- C.
€310,000,-
- D.
€335,000,-
Correct Answer
A. €315,000,- -
- 36.
Which depreciation method allows depreciation in later years to be higher than depreciation in early years?
- A.
Depreciation on the basis of use.
- B.
Straight line depreciation.
- C.
Sum-of-the-years'-digits method.
- D.
Declining balance method.
Correct Answer
A. Depreciation on the basis of use.Explanation
The depreciation method that allows depreciation in later years to be higher than depreciation in early years is the declining balance method. This method provides for a higher depreciation expense in the earlier years of an asset's life and gradually decreases the depreciation expense over time. It is based on the assumption that an asset is more productive and efficient in its early years and becomes less so as it ages. Therefore, higher depreciation is allocated in the earlier years to reflect the asset's higher usage and productivity.Rate this question:
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- 37.
A company has purchased a computer system for €10.000. Its estimated lifespan is four years and the residual value nil. Which statement is correct?
- A.
Depreciation on the basis of straight line depreciation is €500 higher in the third year then depreciation on the basis of sum-of-the-years’-digits.
- B.
Depreciation on the basis of straight line depreciation is €500 lower in the third year then depreciation on the basis of sum-of-the-years’-digits.
- C.
Depreciation on the basis of straight line depreciation is €1000 lower in the third year then depreciation on the basis of sum-of-the-years’-digits.
- D.
Depreciation on the basis of straight line depreciation is €1000 higher in the third year then depreciation on the basis of sum-of-the-years’-digits.
Correct Answer
A. Depreciation on the basis of straight line depreciation is €500 higher in the third year then depreciation on the basis of sum-of-the-years’-digits.Explanation
The straight-line depreciation method allocates an equal amount of depreciation expense over the useful life of an asset. In this case, the computer system has an estimated lifespan of four years, so the annual depreciation expense would be €10,000 divided by 4, which is €2,500 per year.
On the other hand, the sum-of-the-years'-digits method allocates more depreciation expense in the earlier years and less in the later years. The sum of the digits for a four-year lifespan is 1+2+3+4=10. In the first year, the depreciation expense would be €10,000 multiplied by 4/10, which is €4,000. In the second year, it would be €10,000 multiplied by 3/10, which is €3,000. In the third year, it would be €10,000 multiplied by 2/10, which is €2,000.
Therefore, the depreciation on the basis of straight-line depreciation is €500 higher in the third year than the depreciation on the basis of sum-of-the-years'-digits.Rate this question:
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- 38.
A dissatisfied customer has filed a law suit in 2009. He demands €20.000 for suffered damages. This claim seems realistic. At the end of 2010 the judge rules that €15.000 has to be paid to the customer. In 2011 the company pays this amount to the customer. What are the consequences of these events?
- A.
In 2009 profit decreases by €20,000; in 2010 profit increases by €5,000; no consequences for profit in 2011.
- B.
In 2009 profit decreases by €20.000; no consequences for profit in 2010; in 2011 profit increases by €5,000.
- C.
In 2009 profit decreases by €20,000; in 2010 profit decreases by €15,000; no consequences for profit in 2011.
- D.
No consequences for profit in 2009 and 2010; in 2011 profit decreases by €15,000.
Correct Answer
A. In 2009 profit decreases by €20,000; in 2010 profit increases by €5,000; no consequences for profit in 2011.Explanation
In 2009, the company's profit decreases by €20,000 due to the lawsuit filed by the dissatisfied customer. However, in 2010, the judge rules that only €15,000 needs to be paid to the customer, resulting in a decrease of €5,000 in the amount to be paid. This decrease in payment leads to an increase in profit by €5,000 in 2010. There are no consequences for profit in 2011, indicating that the payment of €15,000 to the customer does not affect the company's profit in that year.Rate this question:
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- 39.
At 1 January 2010 the owner’s equity in a company is €1.5 million. At 31 December 2010 the owner’s equity is €4 million. In 2010 €250.000 has been paid to shareholders as dividend. A share issue has raised €1 million new equity in 2010. The 2010 profit is
- A.
€1,750,000,-
- B.
€250,000,-
- C.
€3,250,000,-
- D.
€2,500,000,-
Correct Answer
A. €1,750,000,-Explanation
The 2010 profit is €1,750,000. This can be calculated by taking the difference between the owner's equity at the beginning and end of the year, and then adjusting for any dividends paid and new equity raised. In this case, the owner's equity increased by €2.5 million (from €1.5 million to €4 million), and €250,000 was paid as dividends. Therefore, the net increase in owner's equity due to profit is €2.5 million minus €250,000, which equals €2.25 million.Rate this question:
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- 40.
Which of the following statements is incorrect?
- A.
Most new business are manufacturing business.
- B.
In the EU there are over 20 million SMEs.
- C.
One of the purposes of a business plan is to convince financiers to invest capital in the business.
- D.
Good bookkeeping is necessary for a new business to survive.
Correct Answer
A. Most new business are manufacturing business.Explanation
The statement "Most new business are manufacturing business" is incorrect because not all new businesses are manufacturing businesses. There are various types of businesses that can be started, such as service-based businesses, retail businesses, technology startups, and more. The statement assumes that the majority of new businesses fall under the manufacturing sector, which is not true.Rate this question:
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- 41.
Which of the following statements is incorrect?
- A.
A new business will often be a public limited company.
- B.
An entrepreneur can acquire additional capital by accepting a limited partner.
- C.
A venture capital firm provides capital to new businesses.
- D.
One of the problems for a new business in obtaining capital is that it has yet to prove itself.
Correct Answer
A. A new business will often be a public limited company.Explanation
The statement "A new business will often be a public limited company" is incorrect because a new business can take various legal forms, such as a sole proprietorship, partnership, or private limited company. A public limited company is a specific legal structure that requires certain criteria and procedures to be met. Therefore, it is not accurate to say that a new business will often be a public limited company.Rate this question:
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- 42.
A creditor who, in case of bankruptcy, does not get paid until after the other creditor are paid in full, has provided:
- A.
A subordinated loan.
- B.
A risk-avoiding loan.
- C.
A bank loan.
- D.
A government-guaranteed loan.
Correct Answer
A. A subordinated loan.Explanation
A creditor who, in case of bankruptcy, does not get paid until after the other creditors are paid in full, has provided a subordinated loan. This means that the loan is ranked lower in priority compared to other loans and debts. In the event of bankruptcy, the subordinated loan will be paid off only after the higher-ranked creditors have been fully paid. This arrangement helps to mitigate the risk for the borrower and provides a higher level of security for other creditors.Rate this question:
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- 43.
Which of the following does not belong to the four Ps?
- A.
Planning.
- B.
Place.
- C.
Promotion.
- D.
Product.
Correct Answer
A. Planning.Explanation
The four Ps refer to the marketing mix, which includes Product, Price, Place, and Promotion. Planning is not considered one of the four Ps because it is a process that encompasses all aspects of marketing, including the four Ps. Planning involves setting objectives, identifying target markets, and developing strategies to achieve marketing goals. It is a fundamental step in the marketing process, but it is not specifically categorized as one of the four Ps.Rate this question:
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- 44.
Under which circumstances, generally speaking, does an LLC offer a tax advantage over a sole proprietorship?
- A.
When a large profit is made, which is retained in the company.
- B.
When a small profit is made, which is retained in the company.
- C.
When a large profit is made, which is paid out to the owner.
- D.
When a small profit is made, which is paid out to the owner.
Correct Answer
A. When a large profit is made, which is retained in the company.Explanation
When a large profit is made and retained in the company, an LLC offers a tax advantage over a sole proprietorship. This is because in an LLC, the profits are not subject to self-employment taxes. Instead, the profits are taxed at the individual owner's personal tax rate, which may be lower than the self-employment tax rate. By retaining the profits in the company, the owner can defer paying taxes on those profits until they are distributed as dividends or salary. This can result in potential tax savings for the owner.Rate this question:
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- 45.
Investment plan and the financing plan result in:
- A.
The opening balance sheet.
- B.
The projected closing balance sheet.
- C.
The projected profit and loss account.
- D.
The projected cash flow.
Correct Answer
A. The opening balance sheet.Explanation
Investment plan and financing plan are crucial components of financial planning for a business. They help in determining the initial capital investment required and the sources from which the funds will be raised. The opening balance sheet is a snapshot of the company's financial position at the beginning of the planning period. It includes assets, liabilities, and equity. Therefore, the investment plan and financing plan directly impact the opening balance sheet as they determine the initial financial resources and obligations of the business.Rate this question:
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- 46.
A new business invests €20.000 in equipment and €40.000 in goods. The supplier of the goods provides a two-month trade credit. The annual rent of the business premises of €30.000 must be paid in advance at the start of the business. The entrepreneur has €25.000 saving tot invest in the business. The capital gap is:
- A.
€25,000,-
- B.
€50,000,-
- C.
€90,000,-
- D.
Nil
Correct Answer
A. €25,000,-Explanation
The capital gap is €25,000 because it represents the difference between the total investment in the business (€20,000 for equipment + €40,000 for goods + €30,000 for rent = €90,000) and the entrepreneur's savings of €25,000. This means that the entrepreneur needs an additional €25,000 to fully cover the investment and start the business.Rate this question:
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- 47.
A projected profit and loss account and a projected cash flow are part of the financial statements in a business plan. Which item is entered in the projected profit and loss account but not entered in the projected cash flow?
- A.
Depreciation.
- B.
Paid interest.
- C.
Wages and salaries.
- D.
Repayment of a loan.
Correct Answer
A. Depreciation.Explanation
Depreciation is entered in the projected profit and loss account but not entered in the projected cash flow because it is a non-cash expense. Depreciation represents the decrease in the value of an asset over time, and it is deducted from revenue in the profit and loss account to calculate the net profit. However, depreciation does not involve any cash outflow, so it is not included in the projected cash flow, which focuses on cash inflows and outflows.Rate this question:
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- 48.
A new business requires major investments in the first year of operation. Moreover, its most important customers are government institutions, which are not expected to pay their bills in less than three months. Which statement is correct?
- A.
Profit will be higher than cash flow.
- B.
Profit will be lower than cash flow
- C.
Profit will be equal to cash flow
- D.
One cannot say anything about the difference between profit and cash flow in advance.
Correct Answer
A. Profit will be higher than cash flow.Explanation
In this scenario, the statement "Profit will be higher than cash flow" is correct. This is because the business requires major investments in the first year, which will result in higher cash outflows. Additionally, the important customers are government institutions who are not expected to pay their bills for at least three months, causing a delay in cash inflows. As a result, while the business may generate profits, the cash flow will be lower due to the timing difference between expenses and revenue. Therefore, profit will be higher than cash flow.Rate this question:
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- 49.
In the business plan of a sole proprietorship, what relationship exists between the expected profit and the owner’s equity?
- A.
Owner’s equity at year’s end – owner’s equity at start + private contributions – private drawings = profit
- B.
Owner’s equity at year’s end + owner’s equity at start - private contributions – private drawings = profit
- C.
Owner’s equity at start – owner’s equity at start - private contributions + private drawings = profit
- D.
Owner’s equity at start – owner’s equity at start + private contributions - private drawings = profit
Correct Answer
A. Owner’s equity at year’s end – owner’s equity at start + private contributions – private drawings = profitExplanation
The correct answer states that the relationship between the expected profit and the owner's equity in a sole proprietorship is determined by subtracting the owner's equity at the start of the year from the owner's equity at the end of the year, and then adding the private contributions and subtracting the private drawings. This equation calculates the profit generated by the business during the year.Rate this question:
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- 50.
A capital budgeting project can be characterized by:
- A.
The revenue and expenses over the project period.
- B.
The total payback period.
- C.
The fixed assets and current assets invested in the project.
- D.
The total invest made in the project.
Correct Answer
A. The revenue and expenses over the project period.Explanation
The correct answer is "The revenue and expenses over the project period." This is because a capital budgeting project involves analyzing the cash flows, including revenue and expenses, that will be generated over the project's lifespan. This analysis helps determine the profitability and feasibility of the project. The other options mentioned, such as the total payback period, fixed assets, current assets, and total investment made, are also important factors to consider in capital budgeting, but they do not fully characterize a capital budgeting project.Rate this question:
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