certificate level examination june 2015 )(1½ hours

Copyright © ICAEW 2015. All rights reserved. 209497

Certificate Level Examination

June 2015

(1½ hours)

BUSINESS AND FINANCE

This assessment is confidential.

You are expressly prohibited from disclosing, publishing, reproducing or transmitting this assessment, in whole or part, in any form or by any means, verbal or written, electronic or mechanical, for any purpose, without the prior express written permission of The Institute of Chartered Accountants in England and Wales (the ICAEW).

There are 50 questions in this assessment worth equal marks. The pass mark is 55%.

You will have 90 minutes to complete the assessment which includes any review period.

IMPORTANT

Question papers contain confidential information and must NOT be removed from the examination hall.

You MUST submit this question paper and enter your student number in this box.

IF YOU FAIL TO DO SO YOUR SCRIPT WILL NOT BE MARKED.

DO NOT TURN OVER UNTIL YOU ARE INSTRUCTED TO BEGIN WORK

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BLANK PAGE

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Instructions for recording your answers

1. Record your responses only on the answer sheet provided. 2. Use an HB pencil throughout. 3. Enter 0000 for the centre number and 002 for the test number.

4. Enter your Candidate Number and Test Date into the appropriate spaces on your answer sheet. 5. a. For each of the 50 items in this paper there are up to six options; A, B, C, D, E, F. Choose the response that appears to be the best,

and indicate your choice on the answer sheet as a horizontal line in the box with the corresponding number and letter. For example, if you decide that the answer to item 1 is A, mark the answer sheet as shown below. For this assessment, you should disregard the boxes for options E and F on the answer sheet.

b. Choose one or more responses for each item, as appropriate to the item. Errors should be erased carefully and the new choice marked. Make NO other marks on the answer sheet.

6. ATTEMPT ALL ITEMS; you will score equally for each correct response. There will be no deductions for incorrect responses or omissions. 7. Do not fold or crease the answer sheet.

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1 The price of a good is £2 and annual demand is 50,000 units. Research has shown that increasing the price by £0.20 will reduce demand

by 4,000 units. The price elasticity of demand of the good at £2 is

A 12.50

B 8.00

C 1.25

D 0.80

2 Andes plc is a FTSE 350 company. Which of the following statements in relation to the UK Corporate Governance Code is true for

Andes plc?

A It is bound by law to comply with all the Code’s requirements

B It must either comply with the Code or give good reasons for its non-compliance

C It should be guided by the Code but can pick and choose which aspects to implement, without explanation

D It is unaffected by the Code because it is too small

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3 To be eligible for appointment by a company as the external auditor of its financial statements, a person must comply with which of the

following requirements?

A They must be a member of a recognised supervisory body

B They must be objective

C They must be a partner in a firm of chartered accountants

D They must be registered with the Financial Conduct Authority

4 Barbara has purchased for £25,000 a bond with an annual interest rate of base rate + 0.5%, which matures in 7 years. Interest is only paid

at the end of 7 years, but the bond’s issuer guarantees that Barbara will receive at least £25,000 in 7 years' time.

Which of the following risks has Barbara avoided?

A Interest risk

B Inflation risk

C Capital risk

D Shortfall risk

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5 Vinto plc is an unlisted company. Vinto plc’s board of directors has just appointed Martin as its Finance Director. Following his appointment,

the company’s board of directors must allow the shareholders to approve or disapprove of Martin’s appointment

A immediately

B at the first AGM after his appointment

C only when it deems the time is appropriate

D only if the shareholders petition the board to allow the vote

6 Golo Ltd requires funding for the acquisition of a major new capital asset. The company has agreed to take on the risks and rewards of the

asset’s ownership immediately, but to wait to become the actual legal owner of the asset until it has repaid the funding. The arrangement

entered into by Golo Ltd is

A a lease

B an overdraft

C debt factoring

D a term loan

7 Changes in demand for Product Z caused by a rise in household income will be represented for Product Z by

A a shift in the supply curve for Product Z

B movements along the demand curve for Product Z

C a shift to the left in the demand curve for Product Z

D a shift to the right in the demand curve for Product Z

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8 The following are possible characteristics of organisations.

I Controlled performance

II Achievement of individual goals

III Pursuing a social arrangement

IV Making a profit

V Seeking complete integration with the environment

Which characteristics are common for ALL organisations?

A I and III only

B II and IV only

C III and V only

D I, II, IV and V only

9 The Porter hypothesis is that business responds to strict regulations by

A full compliance

B mere compliance

C innovation

D non-response

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10 The material cost of making one unit of Isdo is 4 litres of Liquid C at £12 per litre = £48 per unit. What type of standard is the quantity of four

litres?

A A profit standard

B A quality standard

C A cost standard

D A physical standard

11 To ensure the needs of the present are met without compromising the ability of future generations to meet their own needs, an organisation

must behave

A profitably

B ethically

C responsibly

D sustainably

12 Which of the following is classified as one of the five fundamental ethical principles in the ICAEW Code of Ethics, which must be observed

by ICAEW members?

A Acting in the public interest

B Confidentiality

C Independence

D Honesty

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13 Myra is a manager with Port plc. She works in the human resources (HR) function of the company, but has no formal qualifications in HR.

She is very influential within the HR function with both the people working for her and the senior managers to whom she reports. This is

because she is able to motivate and persuade those around her with her personality, and her ability to understand and resolve human

resource problems. Myra exhibits which type of power within Port plc?

A Coercive power

B Legitimate power

C Referent power

D Expert power

14 Investigating proposed mergers is the responsibility of

A the Prudential Regulation Authority

B the Competition and Markets Authority

C the Financial Reporting Council

D the Financial Conduct Authority

15 Kingsley is a member of a project team. Kingsley is very committed to the project’s task and always promotes continued activity by the

team. He is often challenging of the other team members. In terms of Belbin’s team roles, Kingsley is

A a team worker

B a finisher

C a resource-investigator

D a shaper

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16 In terms of its organisational structure, Berlo plc is a ‘tall’ business. This characteristic gives which advantage to the managers of the

company?

A More rapid communication between the strategic apex and the operating core

B Encouragement to delegate

C Wide spans of control

D Greater participation by team members in decision-making

17 Franco is involved in a detailed strategic analysis for his company. Currently, he is working on the external analysis.

Which of the following strategic management techniques will Franco most likely use in his analysis?

A The industry life cycle

B The value chain

C The BCG matrix

D Supply chain analysis

18 Reputation risk is a form of

A process risk

B systems risk

C event risk

D legal risk

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19 The fact that financial statements should be drawn up without bias in the selection or presentation of information is an aspect of which of

the following characteristics of financial information?

A Comparability

B Faithful representation

C Relevance

D Understandability

20 Ayres plc wants to begin production of a major new product which requires a new material, Plinin, in its manufacture. The company’s

procurement manager Mindy must decide the quantity of Plinin to order. To do so she needs to balance

A the risk of a delay in production against the cost of holding inventory of Plinin

B the current price of Plinin against the lead time for delivery

C the current price of Plinin against the risk of the price rising

D the risk of a delay in production caused by insufficient Plinin against the risk of the quality of Plinin being poor

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21 Crane Ltd is considering whether to invest in developing a quarry for extracting minerals. The company already owns the land for the

proposed quarry, but existing structures and vegetation would have to be cleared.

Which of the following costs are relevant cash flows for determining the net present value of the company’s capital investment in the quarry

project?

A Non-incremental fixed costs that would be allocated to the project

B The market value of the land and its existing structures

C Future depreciation on the quarry plant and equipment

D The cost of plans for the quarry which were drawn up and paid for last year

22 Yarnton & Co, a firm of chartered accountants, has recently consented in full to an order by the ICAEW’s Investigation Committee. This

means that the firm’s case will

A be referred to the Disciplinary Committee

B be referred to arbitration or conciliation

C be publicised in ICAEW’s magazine and on its website

D be regarded as closed, without any publicity

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23 The finance function of Tilling Ltd has informed the company’s various divisions that figures in this year’s budget are based on the previous

year’s figures plus 2%. The approach to budgeting adopted by Tilling Ltd is

A zero-based budgeting

B incremental budgeting

C flexible budgeting

D rolling budgeting

24 Sooper Ltd’s organisational structure is a machine bureaucracy. In light of Mintzberg’s analysis, what is Sooper Ltd’s (I) key building block

and (II) key co-ordinating mechanism?

A I Strategic apex II Direct supervision

B I Technostructure II Standardisation of work

C I Operating core II Standardisation of skills

D I Middle line II Standardisation of outputs

25 Roy was recently asked to join a project team looking at his employer’s operations in the context of the Global Reporting Initiative. It

appears, therefore, that he has been recruited into this project team in order to use his expertise in

A performance measurement

B strategic management accounting

C capital budgeting

D financial reporting

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26 The directors of Titchener plc wish to improve the efficiency of the company’s use of resources. To do so they should measure

A the company’s core competence in resource use

B the company’s effectiveness and economy in resource use

C the company’s critical success factors

D the company’s success in reducing its costs

27 A company which is financed predominantly by long-term finance is taking

A a defensive position with lower risk and lower return

B a defensive position with higher risk and higher return

C an aggressive position with lower risk and lower return

D an aggressive position with higher risk and higher return

28 The most important source of finance for companies listed on the London Stock Exchange is

A new issues of shares to the public

B rights issues of shares to existing shareholders

C retained profits

D bonus issues of shares to the public

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29 The directors of Radlett plc have recently completed an expensive project aimed at ensuring the company’s full compliance with the terms

of its debenture trust deed. This project illustrates the company’s concern for which major stakeholder?

A Suppliers

B Lenders

C Employees

D Customers

30 Which of the following activities is classified as a ‘reserved area’ for professional accountants?

A Expert witness

B Insolvency

C Corporate finance

D Bookkeeping

31 When calculating potential gross risk, a business must take into account the potential impact and

A the probability of occurrence

B the level of exposure

C the risk appetite

D the level of volatility

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32 String and Co, a firm of chartered accountants, is currently undertaking an assurance engagement for Zubu Ltd. String & Co’s senior

partner has discovered that the audit partner for the engagement was previously employed by Zubu Ltd in a position where she exerted

direct and significant influence over the subject matter of the current assurance engagement.

What type of threat does this situation pose to the audit partner’s compliance with the ICAEW’s fundamental ethical principles?

A The advocacy threat

B The self-interest threat

C The intimidation threat

D The self-review threat

33 A system that aims to help senior managers make strategic, unstructured decisions is

A an executive support system

B an expert system

C an office automation system

D a knowledge work system

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34 For a business which will soon have to liquidate or materially scale back its operations, which of the following accounting principles will be

disapplied when preparing its financial statements?

A The accruals principle

B The going concern principle

C The substance over form principle

D The materiality principle

35 A sound system of corporate governance helps to solve the agency problem. In this context the agents are the directors and the principals

are

A the employees

B the customers

C the public

D the shareholders

36 Simeon has been asked by a client to analyse its primary activities in terms of Porter’s value chain. Simeon will, therefore, be analysing

which of the following?

A Procurement

B Service

C Firm infrastructure

D Technology development

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37 Efficiency in Glebe plc’s production function has declined recently. The production manager has now left and Orla, the replacement

manager, has been asked to find ways to improve how work is allocated and co-ordinated. In terms of the management process, Orla is

being asked to

A organise

B control

C lead

D plan

38 Jono Ltd is a small building company which constructs domestic properties. It has recently agreed to build a commercial property with Kiki

Ltd, which has experience in the commercial sector. Jono Ltd and Kiki Ltd have contributed £100,000 capital to a new company, Joki Ltd,

which will construct the property.

What is the nature of the arrangement that Jono Ltd and Kiki Ltd have entered into?

A A strategic alliance

B A partnership

C A joint venture

D A franchise

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39 Guttheim AG, a German company, has adopted a dual board structure for its board of directors. This means that in addition to the

management board, the company also operates

A a unitary board

B a non-executive board

C a supervisory board

D a subordinate board

40 The finance function of Parlour plc follows up error reports from its financial reporting system to maintain the completeness of information.

This is a form of

A input control

B data validation

C data verification

D output control

41 In the country of Dredland, individuals have a wide range of choice of investments in physical assets and accept a higher level of risk in

their investments. The financial system in Dredland is

A a stakeholder system

B a public policy system

C a bank-based system

D a market-based system

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42 A listed company’s internal audit function is part of

A both its corporate governance and its internal control system

B its corporate governance but not its internal control system

C its internal control system but not its corporate governance

D neither its corporate governance nor its internal control system

43 Product A and Product B are substitutes. The cross elasticity of demand between the two products will be

A negative

B zero

C positive

D indeterminate

44 Nimble Ltd sells protective clothing online in the UK. It has numerous competitors, from large national firms through to small local

businesses. Price cuts and other sales promotions are often used in the industry to win business. The competitors of Nimble Ltd have

noticed that Nimble Ltd always matches the price moves of its competitors, and markets its products aggressively. It appears that, in terms

of Kotler’s competitor reaction profiles, Nimble Ltd is a

A tiger competitor

B stochastic competitor

C selective competitor

D laid back competitor

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45 Which of the following represents an expansionary fiscal stance by the government?

A Increased taxation and spending

B Increased taxation but no increase in spending

C Decreased borrowing and spending

D Increased borrowing and spending

46 Which of the following items may be discounted by an exporter so that payment from a customer is received early?

A A bill of exchange drawn by the customer’s bank

B A bill of exchange drawn by the exporter’s bank

C A letter of credit issued by the customer’s bank

D A letter of credit issued by the exporter’s bank

47 In addition to an organisation’s costs and corporate objectives, the other two major influences on its pricing policy are

A its core competences and its customers

B its competitors and its capacity

C its capacity and its core competences

D its competitors and its customers

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48 Which section of a company’s finance function would have primary responsibility for ensuring the company’s tax compliance?

A The financial transactions recording section

B The treasury management section

C The financial reporting section

D The management accounting section

49 Quanta plc has ten directors on its main board. How many of the company’s directors are required to attend the annual general meeting to

ensure compliance with the UK Corporate Governance Code?

A Ten

B At least nine

C At least seven

D At least five

50 The government has recently imposed a maximum price on Product C. This government action has resulted in an excess of demand over

supply. This indicates that the price imposed by the government was

A the equilibrium price of a complement of Product C

B the minimum possible price for Product C

C lower than the equilibrium price for Product C would be

D higher than the equilibrium price for Product C would be

ITEM 50 COMPLETES THIS TEST

certificate level examination june 2015 )(1½ hours

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