ICET Business and Commerce Fundamentals 2 — Questions and Answers
Question 1: Which inventory costing method assumes the oldest inventory items are sold first?
- LIFO
- FIFO (Correct answer)
- Weighted average
- Specific identification
Correct answer: FIFO
FIFO (First In, First Out) assumes the oldest inventory items are used or sold first.
Question 2: What is the primary goal of financial management in a business?
- Maximizing sales revenue
- Maximizing shareholder wealth (Correct answer)
- Minimizing costs
- Maximizing market share
Correct answer: Maximizing shareholder wealth
The primary goal of financial management is to maximize shareholder wealth through sound financial decisions.
Question 3: Which of the following is a direct tax?
- Sales tax
- Value Added Tax
- Income tax (Correct answer)
- Excise duty
Correct answer: Income tax
Income tax is a direct tax levied directly on individuals or organizations based on their earnings.
Question 4: What does 'depreciation' mean in accounting?
- Increase in asset value over time
- Decline in market selling price
- Systematic allocation of asset cost over its useful life (Correct answer)
- Cash paid for asset maintenance
Correct answer: Systematic allocation of asset cost over its useful life
Depreciation is the systematic allocation of a fixed asset's cost over its useful life.
Question 5: A company's current ratio is 2.5:1. What does this indicate?
- More liabilities than assets
- $2.50 in current assets for every $1 of current liabilities (Correct answer)
- Company is insolvent
- Company needs more debt financing
Correct answer: $2.50 in current assets for every $1 of current liabilities
A current ratio of 2.5:1 means the company has $2.50 in current assets per $1 of current liabilities, indicating strong short-term liquidity.
Question 6: What is 'opportunity cost' in economics?
- The cost of a lost sales opportunity
- The cost of producing one additional unit
- The value of the next best alternative foregone (Correct answer)
- The sunk cost of a past decision
Correct answer: The value of the next best alternative foregone
Opportunity cost is the value of the next best alternative given up when making a choice.
ICET Business and Commerce Fundamentals 2
Which inventory costing method assumes the oldest inventory items are sold first?