1.An entity has the following loan finance in place during the year:
$1 million of 6% loan finance
$2 million of 8% loan finance
lt constructed a new factory which cost $600,000 and this was funded out of the existing loan finance. The factory took 8 months to complete.
To the nearest thousand, what borrowing costs should be capitalized?
The weighted average cost of borrowing is 7.33% (($1m x 6%) + ($2m x 8%))/$3m.
Therefore the amount to be capitalized= 7.33% x $600,000 x 8/12 = $29,333.
If you selected A, you forgot to time apportion the borrowing costs for the construction period. If you selected D you have used 6% rather than the weighted average. If you selected C you have just used 7% as the average rather than calculating the weighted average.
2.The following statements relate to financial accounting or to cost and management accounting:
(i) Financial accounts are historical records.
(ii) Cost accounting is part of financial accounting and establishes costs incurred by an organization.
(iv)Management accounting is used to aid planning, control and decision making.
Which of the statements are correct?
A.(i) and (ii) only
B.(i) and (iii) only
C.(ii) and (iii) only
D.(i), (ii) and (iii)
Cost accounting is not part of financial accounting.
3.Which one of the following sentences does NOT explain the distinction between financial accounts and management accounts?
A.Financial accounts are primarily for external users and management accounts are primarily for internal users
B.Financial accounts are normally produced annually and management accounts are normally produced monthly
C.Financial accounts are more accurate than management accounts
D.Financial accounts are audited by an external auditor and management accounts do not normally have an external audit
Both financial and management accounts are equally accurate.
4.1. Which of the following organizations is normally found in the public sector?
"Schools" is the correct answer because the other organizations are normally found in the private (i.e. non-governmental) sector.