Question 1

The most important reason for holding cash is:

Accepted Answer

A)  to obtain tax benefits. 
B)  to avoid changes in interest rates. 
C)  to earn interest. 
D)  for liquidity. 
A)  to obtain tax benefits. 
B)  to avoid changes in interest rates. 
C)  to earn interest. 
D)  for liquidity.

Question 2

Which of these is not considered a cost of holding inventory?

Accepted Answer

A)  opportunity cost of having funds tied up in inventory 
B)  risk of obsolescence 
C)  risk of bad debts 
D)  cost of storage and handling 
A)  opportunity cost of having funds tied up in inventory 
B)  risk of obsolescence 
C)  risk of bad debts 
D)  cost of storage and handling

Question 3

Which changes would increase a firm's net working capital, all other things remaining constant?

Accepted Answer

A)  increase in debtors 
B)  increase in creditors 
C)  decrease in inventories 
D)  all of the above 
A)  increase in debtors 
B)  increase in creditors 
C)  decrease in inventories 
D)  all of the above

Question 4

The length of the period of credit granted to customers will be affected by:

Accepted Answer

A)  typical credit terms operating within the industry. 
B)  the degree of competition within the industry. 
C)  the bargaining power of particular customers. 
D)  all of the above. 
A)  typical credit terms operating within the industry. 
B)  the degree of competition within the industry. 
C)  the bargaining power of particular customers. 
D)  all of the above.

Question 5

If sales are $850,000, the cost of sales is $500,000 and average inventory is $55,000, the average time taken to sell inventory in days is:

Accepted Answer

A)  40.15 days. 
B)  33 days. 
C)  23.6 days. 
D)  11 days. 
A)  40.15 days. 
B)  33 days. 
C)  23.6 days. 
D)  11 days.

Question 6

Which of the following is not a useful measure of the quality of debtors?

Accepted Answer

A)  average collection period 
B)  the amount owed by the debtor 
C)  aging of debtor's accounts 
D)  bad debts as a percentage of sales 
A)  average collection period 
B)  the amount owed by the debtor 
C)  aging of debtor's accounts 
D)  bad debts as a percentage of sales

Question 7

If the planned level of sales is $146,000 and the planned average collection period is 40 days, the planned average level of debtors will be:

Accepted Answer

A)  $3,650 
B)  $16,000 
C)  $14,600 
D)  $18,500 
A)  $3,650 
B)  $16,000 
C)  $14,600 
D)  $18,500

Question 8

Which statement concerning trade credit is not true?

Accepted Answer

A)  Credit can be a more convenient method of paying for goods than cash. 
B)  Trade credit is an important source of finance for most businesses. 
C)  Trade credit is generally regarded as a 'free' source of finance. 
D)  A discount of 1% offered for prompt payment of amounts owning to creditors is hardly worth taking. 
A)  Credit can be a more convenient method of paying for goods than cash. 
B)  Trade credit is an important source of finance for most businesses. 
C)  Trade credit is generally regarded as a 'free' source of finance. 
D)  A discount of 1% offered for prompt payment of amounts owning to creditors is hardly worth taking.

Question 9

The formula for the average inventory turnover period in days is:

Accepted Answer

A)  Cost of sales/Average inventory. 
B)  Average inventory held/Sales. 
C)  (Average inventory held/Cost of sales) × 365 . 
D)  none of the above. 
A)  Cost of sales/Average inventory. 
B)  Average inventory held/Sales. 
C)  (Average inventory held/Cost of sales) × 365 . 
D)  none of the above.

Question 10

The holding of cash to meet the firm's day-to-day commitments means that cash is being held for a:

Accepted Answer

A)  precautionary motive. 
B)  transactionary motive. 
C)  speculative motive. 
D)  none of the above 
A)  precautionary motive. 
B)  transactionary motive. 
C)  speculative motive. 
D)  none of the above

Question 11

The statement concerning the just-in-time inventory management system that is not true is:

Accepted Answer

A)  The aim of the system is to eliminate the need for the business to hold inventory. 
B)  The problem of holding inventory is shifted to the supplier. 
C)  For the system to work, there must be a close relationship between the business and its supplier. 
D)  The approach is a theoretical one only and has not really been tried in practice. 
A)  The aim of the system is to eliminate the need for the business to hold inventory. 
B)  The problem of holding inventory is shifted to the supplier. 
C)  For the system to work, there must be a close relationship between the business and its supplier. 
D)  The approach is a theoretical one only and has not really been tried in practice.

Question 12

Management of working capital is important because it affects the firm's:

Accepted Answer

A)  liquidity. 
B)  profitability. 
C)  risk. 
D)  all of the above. 
A)  liquidity. 
B)  profitability. 
C)  risk. 
D)  all of the above.

Question 13

Working capital is a measure of a firm's:

Accepted Answer

A)  liquidity. 
B)  equity. 
C)  gearing. 
D)  profitability. 
A)  liquidity. 
B)  equity. 
C)  gearing. 
D)  profitability.

Question 14

Which statement concerning working capital is not true?

Accepted Answer

A)  It is possible to have too much working capital. 
B)  The greater the working capital, the better. 
C)  It is possible to have too little working capital. 
D)  There is an 'ideal' level of working capital. 
A)  It is possible to have too much working capital. 
B)  The greater the working capital, the better. 
C)  It is possible to have too little working capital. 
D)  There is an 'ideal' level of working capital.

Question 15

Credit should be granted to customers in which circumstance?

Accepted Answer

A)  if sales can be increased 
B)  if bad debts can be minimised 
C)  if others in the industry grant credit 
D)  if the benefits exceed the costs 
A)  if sales can be increased 
B)  if bad debts can be minimised 
C)  if others in the industry grant credit 
D)  if the benefits exceed the costs

Question 16

A firm has annual credit sales of $5,000,000 and an average collection period of 52 days. What is their average debtors balance, assuming a 365-day year?

Accepted Answer

A)  $712,345 
B)  $486,111 
C)  $142,857 
D)  none of the above 
A)  $712,345 
B)  $486,111 
C)  $142,857 
D)  none of the above

Question 17

A company wishes to reduce the amount of working capital it requires to finance its operations. Which of the following would be the least effective way of reducing working capital requirements?

Accepted Answer

A)  increase the payment time for creditors 
B)  increase the efforts to collect overdue debtor's accounts 
C)  refuse to sell on credit to any customer 
D)  offer a discount for early payment by debtors 
A)  increase the payment time for creditors 
B)  increase the efforts to collect overdue debtor's accounts 
C)  refuse to sell on credit to any customer 
D)  offer a discount for early payment by debtors

Question 18

Because of uncertainty of demand, a firm may choose to hold an additional amount of inventory called:

Accepted Answer

A)  re-order stock. 
B)  transit stock. 
C)  safety stock. 
D)  economic order quantity stock. 
A)  re-order stock. 
B)  transit stock. 
C)  safety stock. 
D)  economic order quantity stock.

Question 19

Which of the following is not one of the 'five C's' of deciding which customers should be granted credit?

Accepted Answer

A)  capacity 
B)  capability 
C)  capital 
D)  character 
A)  capacity 
B)  capability 
C)  capital 
D)  character

Question 20

If inventory turnover changes from 4 times a year to 5 times a year, this means:

Accepted Answer

A)  inventory turnover is too slow. 
B)  inventory turnover is faster than the industry average. 
C)  on average, inventory is being sold faster. 
D)  on average, it is taking longer to sell inventory. 
A)  inventory turnover is too slow. 
B)  inventory turnover is faster than the industry average. 
C)  on average, inventory is being sold faster. 
D)  on average, it is taking longer to sell inventory.

The most important reason for holding cash is:

Which of these is not considered a cost of holding inventory?

Which changes would increase a firm's net working capital, all other things remaining constant?

The length of the period of credit granted to customers will be affected by:

If sales are $850,000, the cost of sales is $500,000 and average inventory is $55,000, the average time taken to sell inventory in days is:

Which of the following is not a useful measure of the quality of debtors?

If the planned level of sales is $146,000 and the planned average collection period is 40 days, the planned average level of debtors will be:

Which statement concerning trade credit is not true?

The formula for the average inventory turnover period in days is:

The holding of cash to meet the firm's day-to-day commitments means that cash is being held for a:

The statement concerning the just-in-time inventory management system that is not true is:

Management of working capital is important because it affects the firm's:

Working capital is a measure of a firm's:

Which statement concerning working capital is not true?

Credit should be granted to customers in which circumstance?

A firm has annual credit sales of $5,000,000 and an average collection period of 52 days. What is their average debtors balance, assuming a 365-day year?

A company wishes to reduce the amount of working capital it requires to finance its operations. Which of the following would be the least effective way of reducing working capital requirements?

Because of uncertainty of demand, a firm may choose to hold an additional amount of inventory called:

Which of the following is not one of the 'five C's' of deciding which customers should be granted credit?

If inventory turnover changes from 4 times a year to 5 times a year, this means:

Introduction to Accounting

Different Accounting Entities

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Measuring and Reporting Cash Flows

Analysis and Interpretation of Financial Statements

Costvolumeprofit Analysis and Marginal Analysis

Full Costing

Budgeting

Projected Financial Statements

Capital Investment Decisions

Financing the Business

Trends and Issues in Accounting

Filters

Exam 12: The Management of Working Capital

The most important reason for holding cash is:

Which of these is not considered a cost of holding inventory?

Which changes would increase a firm's net working capital, all other things remaining constant?

The length of the period of credit granted to customers will be affected by:

If sales are $850,000, the cost of sales is $500,000 and average inventory is $55,000, the average time taken to sell inventory in days is:

Which of the following is not a useful measure of the quality of debtors?

If the planned level of sales is $146,000 and the planned average collection period is 40 days, the planned average level of debtors will be:

Which statement concerning trade credit is not true?

The formula for the average inventory turnover period in days is:

The holding of cash to meet the firm's day-to-day commitments means that cash is being held for a:

The statement concerning the just-in-time inventory management system that is not true is:

Management of working capital is important because it affects the firm's:

Working capital is a measure of a firm's:

Which statement concerning working capital is not true?

Credit should be granted to customers in which circumstance?

A firm has annual credit sales of $5,000,000 and an average collection period of 52 days. What is their average debtors balance, assuming a 365-day year?

A company wishes to reduce the amount of working capital it requires to finance its operations. Which of the following would be the least effective way of reducing working capital requirements?

Because of uncertainty of demand, a firm may choose to hold an additional amount of inventory called:

Which of the following is not one of the 'five C's' of deciding which customers should be granted credit?

If inventory turnover changes from 4 times a year to 5 times a year, this means:

Introduction to Accounting

Different Accounting Entities

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Measuring and Reporting Cash Flows

Analysis and Interpretation of Financial Statements

Costvolumeprofit Analysis and Marginal Analysis

Full Costing

Budgeting

Projected Financial Statements

Capital Investment Decisions

Financing the Business

Trends and Issues in Accounting

Filters