FREE CIMA Fundamentals of Financial Accounting Questions and Answers

Question 1

The Finance Director of EFG company has made the following statements regarding the recording of expenditures relating to the entity's property, plant, and equipment (PPE) in the nominal ledger.

Which THREE of the following statements are true?

Accepted Answer

The annual depreciation charge reduces EFG's profit for the year.

Answer

Explanation:
1. Depreciation is an expense recorded on the income statement, which reduces the company's profit for the year.
2. The loss on the disposal of PPE is also an expense recorded on the income statement, reducing the profit for the year.
3. Depreciation reduces the carrying value (book value) of PPE on the balance sheet, reflecting the decrease in the asset's value over time.

Question 2

In the year ended 31 December 20X1, XYZ received an email confirming that a major customer had gone into liquidation and would be unable to pay its suppliers.

Which of the following is the impact of adjusting for this event?

Accepted Answer

Receivables decrease and allowances increase

Answer

Explanation:
When a major customer goes into liquidation, likely, the amount XYZ expected to receive from them will not be paid. This means that the accounts receivable balance decreases because it's unlikely to be collected. Additionally, the allowance for doubtful debts or bad debts increases to reflect the potential loss from the liquidation.

Question 3

GG has the statement below of profit or loss extract for the year ended 31 December 20X3.

What is the interest cover for GG for the year ended 31 December 20X3?

Accepted Answer

4.0 times

Answer

Explanation:
Interest cover is calculated by dividing earnings before interest and taxes (EBIT) by the interest expense.

Question 4

UVW is preparing its manufacturing account for the year ended 30 June 20X7 The following information is available:

What is UVWs prime cost for year ended 30 June 20X7?

Accepted Answer

$352,000

Answer

Explanation:
Prime cost is the sum of direct materials cost and direct labor cost. In this case, the prime cost can be calculated as:

Prime Cost = Direct Materials + Direct Labor
Prime Cost = $200,000 + $152,000
Prime Cost = $352,000

Question 5

IAS 2 Inventories does not permit the use of the last in. first out (LIFO) method of valuing inventory In a time of rising prices, which of the following is a reason for this?

Accepted Answer

Closing inventory is understated.

Answer

Explanation:
In the context of rising prices, using the LIFO method means that the older, cheaper inventory is assumed to be sold first, leaving the newer, more expensive inventory in the closing inventory. This results in the closing inventory being understated because it reflects the cost of older inventory rather than the current higher prices.

CIMA - Chartered Institute of Management Accountants Aptitude Test Practice Test

CIMA - Chartered Institute of Management Accountants Aptitude Test Practice Test

FREE CIMA Fundamentals of Financial Accounting Questions and Answers