Question 1

Which of the following is not an approach to dealing with liquidity problems?

Accepted Answer

A)  Pay suppliers by check 
B)  Pay suppliers by bank transfer 
C)  Sell off surplus assets 
D)  Sell off inventory at low price 
A)  Pay suppliers by check 
B)  Pay suppliers by bank transfer 
C)  Sell off surplus assets 
D)  Sell off inventory at low price B

Question 2

The definition of "Working Capital" is:

Accepted Answer

A)  Non-Current Assets - Non-Current Liabilities 
B)  Bank + Cash 
C)  Non-Current Assets + Current Assets - Current Liabilities 
D)  Current Assets - Current Liabilities 
A)  Non-Current Assets - Non-Current Liabilities 
B)  Bank + Cash 
C)  Non-Current Assets + Current Assets - Current Liabilities 
D)  Current Assets - Current Liabilities D

Question 3

From the following statement of financial position extract of RiffRaff plc,calculate the working capital:
$$\begin{array} { l c } 
& £ 000 \
\text { Non-current assets } & 210 \
\text { Non-current liabilities } & \
10 \% \text { debentures } & 100 \
\text { Equity } & \
\quad \text { Share capital } & 90 \
\text { Retained earnings } & 60
\end{array}$$

Accepted Answer

A)  £110,000 
B)  £(40,000) 
C)  £40,000 
D)  £60,000 
A)  £110,000 
B)  £(40,000) 
C)  £40,000 
D)  £60,000 C

Question 4

Which of the following statements is false?

Accepted Answer

A)  Trade payables, if managed appropriately, can be a cost-free source of finance 
B)  An excessive delay in paying creditors is a good way to extend a cost-free source of finance 
C)  Deferment in the payment of taxes is one way of addressing liquidity problems 
D)  None of the above statements are false 
A)  Trade payables, if managed appropriately, can be a cost-free source of finance 
B)  An excessive delay in paying creditors is a good way to extend a cost-free source of finance 
C)  Deferment in the payment of taxes is one way of addressing liquidity problems 
D)  None of the above statements are false

Question 5

One way of addressing the solvency problems associated with overtrading is to try and pay creditors more quickly

Accepted Answer

A) True 
 B)False

Question 6

High levels of working capital are associated with insolvency

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is correct?

Accepted Answer

A)  Economic order quantity is the quantity at which the annual inventory holding cost is equal to the annual ordering cost 
B)  Economic order quantity is the quantity at which annual inventory holding cost has been maximized 
C)  Economic order quantity is the quantity at which annual inventory ordering costs is minimized 
D)  Economic order quantity is the amount at which inventory costs are offset by sales 
A)  Economic order quantity is the quantity at which the annual inventory holding cost is equal to the annual ordering cost 
B)  Economic order quantity is the quantity at which annual inventory holding cost has been maximized 
C)  Economic order quantity is the quantity at which annual inventory ordering costs is minimized 
D)  Economic order quantity is the amount at which inventory costs are offset by sales

Question 8

A company has steady annual demand of 4,000 units.Ordering costs £250 per order.The holding cost is £8 per unit per year.
Using the Economic Order Quantity,what is the optimum order quantity for the company,and how many orders should be placed per year?
Formula: $$E O Q = \sqrt { \frac { 2 C _ { O } D } { C _ { H } } }$$

Accepted Answer

A)  Order 4,000 units at a time, with a total of 1 order per year 
B)  Order 16 units at a time, with a total of 250 orders per year 
C)  Order 500 units at a time, with a total of 8 orders in the year 
D)  Impossible to calculate, since we do not know cost per unit 
A)  Order 4,000 units at a time, with a total of 1 order per year 
B)  Order 16 units at a time, with a total of 250 orders per year 
C)  Order 500 units at a time, with a total of 8 orders in the year 
D)  Impossible to calculate, since we do not know cost per unit

Question 9

Which of the following is not an appropriate means of assessing the credit worthiness of a customer?

Accepted Answer

A)  Rely on personal judgment 
B)  Look at the customers annual reports and accounts 
C)  Assume the customer will pay 
D)  Use a credit rating agency 
A)  Rely on personal judgment 
B)  Look at the customers annual reports and accounts 
C)  Assume the customer will pay 
D)  Use a credit rating agency

Question 10

Economic order quantity means:

Accepted Answer

A)  Ordering small quantities at frequent intervals 
B)  Ordering large quantities less frequently 
C)  Outsourcing inventory management 
D)  To balance inventory ordering costs and holding costs 
A)  Ordering small quantities at frequent intervals 
B)  Ordering large quantities less frequently 
C)  Outsourcing inventory management 
D)  To balance inventory ordering costs and holding costs

Question 11

A company currently uses an overdraft at 10% per annum.
A new credit controller is brought in,at a cost of £5,000 salary more than the previous person doing the job.After one year she claims to have saved the company money because she has reduced receivables from £50,000 to £20,000.
How much has she saved the company?

Accepted Answer

A)  She has saved the company £25,000 
B)  She has saved the company £30,000 
C)  She has cost the company £2,000 
D)  She has cost the company £35,000 
A)  She has saved the company £25,000 
B)  She has saved the company £30,000 
C)  She has cost the company £2,000 
D)  She has cost the company £35,000

Question 12

Working capital may be defined as:

Accepted Answer

A)  Current assets + current liabilities = working capital 
B)  Long-term funds + non-current assets = working capital 
C)  Current assets + non-current assets = working capital 
D)  Long-term funds - non-current assets = working capital 
A)  Current assets + current liabilities = working capital 
B)  Long-term funds + non-current assets = working capital 
C)  Current assets + non-current assets = working capital 
D)  Long-term funds - non-current assets = working capital

Question 13

If trade receivables is reduced,the amount of capital employed is reduced and profitability is increased

Accepted Answer

A) True 
 B)False

Question 14

Which of the following practical problems are associated with economic order quantity (EOQ)?

Accepted Answer

A)  It is often difficult to determine ordering costs with sufficient accuracy 
B)  It is often difficult to determine stockholding costs with sufficient accuracy 
C)  Annual demand may not be so predictable 
D)  All of the above 
A)  It is often difficult to determine ordering costs with sufficient accuracy 
B)  It is often difficult to determine stockholding costs with sufficient accuracy 
C)  Annual demand may not be so predictable 
D)  All of the above

Question 15

It always makes sense to hold as much inventory as possible,"just in case" the inventory is needed and it is cost free

Accepted Answer

A) True 
 B)False

Question 16

The Trial Balance of a company shows:
 
The Working Capital of the company is:

Accepted Answer

A)  1,000 
B)  2,500 
C)  12,000 
D)  -1,000 
A)  1,000 
B)  2,500 
C)  12,000 
D)  -1,000

Question 17

Which of the following is normally associated with an attempt to address "overtrading"?

Accepted Answer

A)  Reduce overdraft 
B)  Extend trade receivables 
C)  Delay payments to creditors 
D)  Increase inventory 
A)  Reduce overdraft 
B)  Extend trade receivables 
C)  Delay payments to creditors 
D)  Increase inventory

Question 18

The Dingle company uses 12,000 units of dingits each year,and pays 75p each for them.The administration costs associated with each order is £175 and the shareholder costs are estimated at 20% per annum.Calculate the economic order quantity (EOQ).

Accepted Answer

A)  3672 
B)  2050 
C)  5292 
D)  1184 
A)  3672 
B)  2050 
C)  5292 
D)  1184

Question 19

There is no relationship between a companies turnover and their working capital

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is a limitation of Economic Order Quantity?

Accepted Answer

A)  It is weak in assessing the appropriate order quantity 
B)  It fails to consider inventory holding costs 
C)  It does not take quantity discounts into account 
D)  It fails to consider ordering costs 
A)  It is weak in assessing the appropriate order quantity 
B)  It fails to consider inventory holding costs 
C)  It does not take quantity discounts into account 
D)  It fails to consider ordering costs

Which of the following is not an approach to dealing with liquidity problems?

The definition of "Working Capital" is:

From the following statement of financial position extract of RiffRaff plc,calculate the working capital: £000 Non-current assets 210 Non-current liabilities 10\% debentures 100 Equity Share capital 90 Retained earnings 60

Which of the following statements is false?

One way of addressing the solvency problems associated with overtrading is to try and pay creditors more quickly

High levels of working capital are associated with insolvency

Which of the following statements is correct?

Which of the following is not an appropriate means of assessing the credit worthiness of a customer?

Economic order quantity means:

Working capital may be defined as:

If trade receivables is reduced,the amount of capital employed is reduced and profitability is increased

Which of the following practical problems are associated with economic order quantity (EOQ)?

It always makes sense to hold as much inventory as possible,"just in case" the inventory is needed and it is cost free

The Trial Balance of a company shows: The Working Capital of the company is:

Which of the following is normally associated with an attempt to address "overtrading"?

The Dingle company uses 12,000 units of dingits each year,and pays 75p each for them.The administration costs associated with each order is £175 and the shareholder costs are estimated at 20% per annum.Calculate the economic order quantity (EOQ).

There is no relationship between a companies turnover and their working capital

Which of the following is a limitation of Economic Order Quantity?

The Statement of Financial Position Balance Sheetand What It Tells Us

The Income Statement Profit and Loss Account

The Development of Financial Reporting

Ratios and Interpretation: a Straightforward Introduction

How the Stock Market Assesses Company Performance

Cash Flow Statements: Understanding and Preparation

Advanced Interpretation of Company and Group Accounts

Current Issues in Financial Reporting

Bookkeeping to Trial Balance

Trial Balance to Final Accounts

Financing a Business

Introduction to Management Accounting

Investment Appraisal

Budgetary Planning and Control

Absorption Costing

Marginal Costing and Decision-Making

Standard Costing and Variance Analysis

Incomplete Records

Filters

Exam 12: Management of Working Capital

Which of the following is not an approach to dealing with liquidity problems?

The definition of "Working Capital" is:

From the following statement of financial position extract of RiffRaff plc,calculate the working capital: £000 Non-current assets 210 Non-current liabilities 10\% debentures 100 Equity Share capital 90 Retained earnings 60

Which of the following statements is false?

One way of addressing the solvency problems associated with overtrading is to try and pay creditors more quickly

High levels of working capital are associated with insolvency

Which of the following statements is correct?

Which of the following is not an appropriate means of assessing the credit worthiness of a customer?

Economic order quantity means:

Working capital may be defined as:

If trade receivables is reduced,the amount of capital employed is reduced and profitability is increased

Which of the following practical problems are associated with economic order quantity (EOQ)?

It always makes sense to hold as much inventory as possible,"just in case" the inventory is needed and it is cost free

The Trial Balance of a company shows: The Working Capital of the company is:

Which of the following is normally associated with an attempt to address "overtrading"?

The Dingle company uses 12,000 units of dingits each year,and pays 75p each for them.The administration costs associated with each order is £175 and the shareholder costs are estimated at 20% per annum.Calculate the economic order quantity (EOQ).

There is no relationship between a companies turnover and their working capital

Which of the following is a limitation of Economic Order Quantity?

The Statement of Financial Position Balance Sheetand What It Tells Us

The Income Statement Profit and Loss Account

The Development of Financial Reporting

Ratios and Interpretation: a Straightforward Introduction

How the Stock Market Assesses Company Performance

Cash Flow Statements: Understanding and Preparation

Advanced Interpretation of Company and Group Accounts

Current Issues in Financial Reporting

Bookkeeping to Trial Balance

Trial Balance to Final Accounts

Financing a Business

Introduction to Management Accounting

Investment Appraisal

Budgetary Planning and Control

Absorption Costing

Marginal Costing and Decision-Making

Standard Costing and Variance Analysis

Incomplete Records

Filters