6-Business Accounting and Finance

Name :_______________ Date: ___________

From: Programming / Networking / Multimedia / Electronic Level : _________

PART 1 – OBJECTIVE QUESTIONS (5 marks)

1. Davey produces 100 glasses of lemonade with average total cost of 50 cents per glass
and average variable cost of 40 cents per glass. What is Davey's total fixed cost?

A. $40.00
B. $50.00
C. $12.00
D. $10.00

2. Remember Davey from the previous question? As before he produces 100 glasses of
lemonade with average total cost of 50 cents per glass and average variable cost of 40
cents per glass. Suppose he decides to increase his production to 120 glasses of lemonade
for today, what is his total fixed cost now?

A. $40.00
B. $50.00
C. $12.00
D. $10.00

3. Which of the following is NOT true of a company’s gearing?

A. Bank will not lend the firm money if the business has high gearing
B. Gearing is the proportion of loan finance to capital employed
C. High gearing can make a business more risky
D. Highly geared company is not affected by the business cycle

4. Which of the following is NOT true of a company’s current assets?

A. Current assets cannot be easily converted to cash

B. Trade debtor is part of current assets
C. Stocks of the company is part of current assets
D. Current assets less current liabilities represents the company’s ability to
make payments to suppliers and pay day-to-day expenses

5. Problems arise when a firm has insufficient cash to pay creditors and may place the
company in liquidation. What are the reasons and which of the following is NOT true?

A. The business is affected by seasonal business variations

B. External influences
C. The company has too many shareholders
D. Changes in tax rates and interest rates

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 6-Business Accounting and Finance

PART 2 – True or false, short Answer and subjective questions (20 marks)

6. a) Identify four external sources of finance available for a Public Limited Company.
(4 marks)
i. Bank Loan ii. Issue of Shares
iii. Issue of Debentures iv. Overdraft facility

7. a) Name the four costs associated with holding large quantities of stocks. (4 marks)

i. Insurance costs ii. Storage costs

ii. finance costs iv. Obsolete and redundant stocks

8. Write true or false in the box provided. ( 2 marks)

a) A Budget can also act as a motivational tool for an organisation. True

b) Arranging a short-term loan to cover shortfall but may incur a high cost. True

9. Define the term ‘Working Capital’ and “Cash flow”. (4 marks)

Working Capital is the fund used to run the day to day business.
Cash flow is the flow of money in and out of the business.

10. Name 3 ways that can help a company overcome its cash flow problems. (6 marks)

i) The business may mortgage the assets and apply for a bank loan.
ii) Public Limited Company can issue shares to raise capital.
iii) The business can buy machinery and equipments by using leasing facility.
iv) The business can also use factoring which is a short-term loan facility.
v) The business can apply for overdraft facility if the cash flow problem is
short-term only.
vi) Private Limited company can add new partners to raise the capital.