CIMA Business Law and Taxation 1

Question 1

In contract law, which element is described as 'something of value exchanged between parties to a contract'?

Accepted Answer

Consideration

Answer

Consideration is the element of contract law requiring that something of value be exchanged between the parties, making the agreement legally binding.

Question 2

What is the primary purpose of the Sarbanes-Oxley Act (SOX) in the US?

Accepted Answer

Improving corporate governance and financial reporting accuracy following major accounting scandals

Answer

SOX was enacted to improve corporate governance, financial reporting accuracy, and accountability following the Enron and WorldCom accounting scandals.

Question 3

What does 'limited liability' mean for shareholders of a corporation?

Accepted Answer

Shareholders' losses are limited to the amount they invested in the company

Answer

Limited liability means shareholders can only lose the amount they invested; their personal assets are protected from the company's debts and liabilities.

Question 4

In US taxation, what is 'depreciation recapture'?

Accepted Answer

The inclusion in taxable income of gains attributable to previously claimed depreciation deductions when an asset is sold

Answer

Depreciation recapture requires that gains on the sale of an asset, to the extent they reflect previously deducted depreciation, be recognized as ordinary income.

Question 5

Which legal structure provides owners with limited liability while avoiding the double taxation typical of C-corporations in the US?

Accepted Answer

S-Corporation (or LLC)

Answer

S-Corporations and LLCs (with pass-through election) provide limited liability to owners while allowing income to pass through to personal tax returns, avoiding double taxation.

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 1