CIMA Business Law and Taxation 2

Question 1

Under US tax law, what is the 'matching principle' in the context of corporate taxation?

Accepted Answer

Income and related expenses should be recognized in the same period

Answer

The matching principle requires that income and the expenses incurred to generate it be recognized in the same accounting period for accurate profit measurement.

Question 2

Which US federal law governs employer-employee relationships and sets minimum wage and overtime requirements?

Accepted Answer

The Fair Labor Standards Act (FLSA)

Answer

The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and child labor standards for most US employees.

Question 3

In US business taxation, what is a 'tax credit' as distinct from a 'tax deduction'?

Accepted Answer

A tax credit directly reduces the tax owed; a deduction reduces taxable income

Answer

A tax credit directly reduces the tax liability dollar-for-dollar, making it more valuable than a deduction, which only reduces taxable income.

Question 4

What does the legal concept of 'piercing the corporate veil' mean?

Accepted Answer

Holding shareholders personally liable for corporate debts when they have abused the corporate form

Answer

Piercing the corporate veil occurs when courts hold shareholders personally liable for corporate debts, typically where the corporate form has been abused or used fraudulently.

Question 5

Which of the following describes a 'sole trader' (sole proprietorship) in US business law?

Accepted Answer

An unincorporated business owned and operated by one individual, with unlimited personal liability

Answer

A sole proprietorship is an unincorporated business owned and operated by one individual, who has unlimited personal liability for all business debts.

CIMA - Chartered Institute of Management Accountants Aptitude Test Practice Test

CIMA - Chartered Institute of Management Accountants Aptitude Test Practice Test

CIMA Business Law and Taxation 2