Task 1

Classify the following items as either a current asset, non-current asset, current liability, non-current liability, owner's equity or on an income statement:

Gross profit

Accounts receivable

Mortgage

Sales

Inventory/stock

Overdraft

COGS

Car

Equipment

Drawings

Land

Selling expenses

Retained profits

Buildings

Administrative expenses

Cash

Accounts payable

Net profit

Goodwill

MCQ

1. Which objective of financial management is concerned with the ability of a business to efficiently manage its revenue and expenses?

a) Profitability
b) Liquidity
c) Efficiency
d) Growth

2. What is liquidity used to determine?

a) The profitability of the business
b) The ability of the business to repay its short-term debts
c) The return to shareholders on their investment
d) The ability of a business to maximise revenue

3. What does efficiency refer to in the financial management of a business?

a) Increasing the sales of a business
b) Ensuring there is enough cash in the business
c) Keeping spending to a minimum
d) Reducing expenses while increasing profits

4. Why is the effective management of a business's financial resources important in the long term?

a) It encourages a business to develop expensive marketing strategies
b) It is through the effective use of financial resources that a business is able to achieve its financial objectives
c) It s through the use of financial resources that a business is able to obtain the best inputs
d) It allows the business to acquire highly skilled and motivated employees

5. During the establishment stage of the business cycle, what is the most likely financial objective?

a) Profitability
b) Forecasting
c) Efficiency
d) Solvency

6. What are the internal sources of finance available to a business?

a) Shares, retained profits, loans
b) Leasing, factoring, venture capital
c) Retained profits, owners equity, new partner
d) Commercial bills, shares, leasing

7. What is the advantage of a bank overdraft for a small business?

a) Higher costs than a loan
b) Lower costs than a loan
c) High level of flexibility
d) Low level of flexibility

8. Which of the following best describes factoring?

a) Selling accounts receivable
b) Selling accounts payable
c) Selling inventory
d) Selling current assets

9. What is a disadvantage of raising capital through a share issue?

a) Only certain people can buy shares
b) The high cost of issuing shares
c) The shares can be bought and sold on the stock exchange
d) The ownership of the business can become diluted

10. What source of finance is most appropriate for a large expansion?

a) Mortgage
b) Overdraft
c) Factoring
d) Debentures

Short Answer

Calculate COGS, gross profit and net profit for each year using the following information. Suggest reasons for any changes in the net profit from 2012 to 2013.

            2012                                       2013

Purchases                                            $50 000                                 $70 000

Revenue                                              $230 000                               $180 000

Admin expenses                                   $30 000                                 $50 000

Operational expenses                            $40 000                                 $50 000

Opening stock                                      $20 000                                 $50 000

Financial expenses                                $30 000                                 $40 000

Closing stock                                        $60 000                                 $60 000

Using the following information calculate:

·         Total current assets

·         Total non-current assets

·         Total assets

·         Total liabilities

·         Owners equity

Plant and equipment                      $68 000

Cash                                            $30 400

Accounts payable                         $82 000

Inventory                                      $4 100

Sales                                            $150 000

Mortgage                                      $75 500

Land and buildings                         $85 000

Accounts receivable                      $58 000