Question

SELF-STUDY QUESTIONS Ansers are at the end of the chapter 1. Intra-entity analysis is useful to detect a) chunges in financial relationships and significant trends within the entity. (b)differences between entities within an industry (c) differences between entities. 7. In vertical analysis, the base amount foe depreciation expense is generally (a) net sales. (b) depreciation expense in a previous LO1) LO3 year. (c) gross proft. d) all of the above. (d) non-cunent assets L01) 2 Industry average analysis is useful to detect LO3 8. The following schedule is a display of what type of analysis (a) differences between entities within an industry db)clunges in financial relationships and significant trends within the entity (c) differences between entities (d)all of the above Percentage Amount 25 % Current assets $200000 Property, plant and equipment 75 % 600000 Total assets S800000 LO1) 3 Comparison of data with other entities is an example of the Sollowing compurative basis (c) Industry averages. (d) both (a) and (b) (a) Horizontal analysis (b) Differential analysis. (c Vertical analysis (d) Ratio analysis. (a) Intra-entity Фс-сntirу. 01) 4 Which of the folloning are the basic tools used in financial statement analysis (a) Horizontal analysis. b) Vertical analysis. ( Ratio analysis (d) All of the above 9. Which measure is an evaluation of an emtity's ability to pay current liabilities (a) Quick ratio (b) Current ratio (c) Both (a) and (b). L04 (d) None of the above, LO2) 5. In horizontal analysis, each item is expressed as a percentage of the а) реоfit amлnt. (b)equity amount (c) total assets amount (d) base-year amount L04 10, Which measure is useful in evaluating the efficiency in managing inventories (a) Inventory turnover. (b) Average days in inventory (c) Both (a) and (h) (d) None of the above. LO2) 6 Canterbury Ltd reported net sales of $300000, s330000, and S360000 in the years 2015, 2016 and 2017 respectively. If 2015 is the base year, what is the trend percentage for 2017 (a) 77 % 11. Which of these is not a liquidity ratio L04) (a) Current ratio (b) Asset tumover (c) 120% (d) 130 % (c) Inventory turnover. (b) 108% (d) Receivables turnover 756 inancial Accounting Reporting analysis and decision making-th edtion 12 Slver Fem Limited reported profit $24000; net sales $i00000 and average assets $600000 Sor 2016. What is the 2016 profit margin (a) 6% (b) 12% (b) Entities which are highly diversified are required to report segment data (c) Segment data includes information about each reportable segment. (d) Entities which have signficant operations in different industries are required to L04 (c) 40% (d) 200% 13. Which of the following is generally not considered to be a limitation of financial statement analysis (a) Use of ratios b) Use of estimates (d) Use of albenative (LOS ероп медтети da 15 Which of the following are generally a05) (c) Use of cost considered to be limitations of financial statement analysis? a) Use of estimates, e g. for depreciation b) Use of cost for asset purchases. (c) Use of alternative accounting methods, eg for inventory valuation. (d) All of the above accounting methods 14. Which of the following is not considkered to be true in relation to segmental data (a) Entities which make significant sales in different industries are required to report. segment data. LOS

Answer 1

1	OPTION A	INTRA ENTITY ANALYSIS MEANS ANALYSIS WITHIN THE COMPANY.
2	OPTION A	INDUSTRY AVERAGE COMPARES THE VARIOUS COMPANIES WITHIN THE INDUSTRY.
3	OPTION B	COMPARISION WITH OTHER ENTITIES IS INTER COMPANY
4	OPTION D	ALL OF THE MENTIONED ARE THE TOOLS OF ANALYSIS
5	OPTION D	IN HORIZONTAL ANALYSIS, WE ANALYSE THE DATA OVER A PERIOD OF TIME, AND ANALYSIS INCREASE AND DECREASE FROM BASE YEAR. BASE YEAR FIGURES.
6	OPTION C
	2015	2016	2017
	300000	330000	360000
			120%
		dividing 360000/ 300000 %
7	OPTION A	IN VERTICAL ANALYSIS, EACH ITEM IS EXPRESSED AS A PERCENTAGE OF ONE ITEM IN THE STATEMENT.
8	OPTION C	IN VERTICAL ANALYSIS, EACH ITEM IS EXPRESSED AS A PERCENTAGE OF ONE ITEM IN THE STATEMENT.
		SO THEREFORE, THIS IS VERTICAL ANALYSIS WHERE TOTAL ASSETS IS USED FOR DIVIDING THE INDIVIDUAL CLASSES OF ASSETS.
9	OPTION C	BOTH ARE THE MEASURE TO EVALUATE THE CURRENT LIABILITY
10	OPTION C
11	OPTION B	ASSET TURNOVER RATIO IS A FINANCIAL RATIO, IT MEASURES THE EFFICIENCY OF USAGE OF ASSETS
12	OPTION A	NET PROFIT MARGN = PROFIT MARGIN/ NET SALES *100
		24000/400000*100
		6
13	OPTION A	RATIOS ARE VERY USEFUL IN FINANCIAL ANALYSIS, THERFORE IT IS NOT A LIMITATION OF FINANCIAL ANALYSIS.
15	OPTION D	ALL OF THE ABOVE ARE THE LIMITATIONS OF FINANCIAL ANALYSIS
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