Practice Questions • 20 Questions
Distinguish between the role of directors and the role of auditors in relation to a limited company's published financial statements. (3 marks)
Distinguish between single entry and double entry recording systems, and state ONE advantage of double entry over single entry. (3 marks)
Define the term "stakeholder" and state TWO internal and TWO external stakeholders of a limited company. (4 marks)
State the formula for EACH of the following ratios: (a) Earnings per share; (b) Dividend yield; (c) Dividend cover; (d) Price/earnings ratio. (4 marks)
State TWO advantages and TWO disadvantages of using a computerised accounting system compared to a manual system. (4 marks)
Explain TWO limitations of using ratio analysis to assess the financial performance of a business. (4 marks)
Hartley Plc has announced plans to significantly increase its borrowings to fund an expansion programme. Explain the likely interest of TWO different stakeholders in this decision, other than shareholders. (4 marks)
Meridian Ltd reported a net profit of £180 000 for the year ended 31 March 2026. However, the bank balance fell from £42 000 to £8 000 during the same period. Explain TWO reasons why a business can be profitable but still experience a fall in its cash balance. (4 marks)
Explain how an employee might use the published financial statements of a limited company to assess their job security and pay prospects. (4 marks)
Explain what is meant by "window dressing" in the context of published financial statements, and give ONE example of how a company might window dress its accounts. (4 marks)
Explain why non-financial factors are important when assessing the overall performance of a business, and give TWO examples of non-financial factors that are not shown in published financial statements. (4 marks)
A small sole trader currently maintains accounting records manually. Their bookkeeper has suggested switching to accounting software. Evaluate whether the sole trader should switch to a computerised accounting system. (6 marks)
Vantage Plc is a major retailer. A supplier is considering whether to extend 60-day credit terms to Vantage Plc. The supplier has obtained a copy of Vantage Plc's most recently published financial statements. Assess the extent to which published financial statements are useful to the supplier in making this decision. (6 marks)
The following information is available for Blackwood Plc for the year ended 31 March 2026: Calculate: (a) Earnings per share; (b) Dividend per share; (c) Dividend yield; (d) Dividend cover; (e) Interest cover. (8 marks)
The following information is available for two companies for the year ended 30 September 2025: Calculate for each company: (i) dividend yield; (ii) dividend cover; (iii) interest cover; (iv) P/E ratio. (8 marks)
The directors of Ferndale Plc are considering closing one of its three factories to reduce costs. The closure would result in 200 redundancies. The remaining two factories would increase output to maintain total production levels. Assess the impact of this decision on TWO stakeholder groups, other than shareholders. (8 marks)
Priya is considering purchasing shares in one of two companies. She has calculated the following ratios for both: Evaluate which company Priya should purchase shares in. (10 marks)
Radford Plc manufactures industrial components. The company is considering expanding its production capacity by building a new factory in a rural area. The expansion would create 150 new jobs. The factory would be funded by a new bank loan, increasing the company's gearing from 30% to 65%. Evaluate the impact of this expansion on the stakeholders of Radford Plc and on the wider economy and environment. (10 marks)
A potential investor is trying to decide whether to purchase a significant shareholding in Lowfield Plc. They have access to Lowfield's most recently published annual report and financial statements, which show strong profitability and a healthy balance sheet. Evaluate the extent to which the published financial statements provide sufficient information for the investor to make this decision. (10 marks)