ACCA Applied Knowledge Exam — Questions and Answers

Question 1: A non-current asset cost £50,000, has a useful life of 10 years, and a residual value of £5,000. Using the straight-line method, what is the annual depreciation charge?

£5,000
£4,500 (Correct answer)
£50,000
£45,000

Correct answer: £4,500

Straight-line depreciation = (Cost − Residual value) ÷ Useful life = (£50,000 − £5,000) ÷ 10 = £4,500 per year.

Question 2: A product passes through two processes. The output of Process 1 becomes the input of Process 2. This is an example of which costing method?

Process costing (Correct answer)
Job costing
Contract costing
Batch costing

Correct answer: Process costing

Process costing is used where production is continuous and products pass through a series of processes. The output of one process becomes the input of the next, and costs are averaged over units produced.

Question 3: Which of the following items would appear in Other Comprehensive Income (OCI) rather than profit or loss?

Depreciation of office equipment
A revaluation surplus on property under the revaluation model of IAS 16 (Correct answer)
Finance costs on a bank loan
Revenue from contracts with customers

Correct answer: A revaluation surplus on property under the revaluation model of IAS 16

Under IAS 16, when an asset is revalued upwards for the first time, the revaluation surplus is recognised in other comprehensive income and accumulated in equity under a revaluation surplus reserve. It does not pass through profit or loss.

Question 4: What is meant by 'social responsibility' in a business context?

A company's legal obligation to pay corporation tax
The responsibility of employees to follow workplace rules
The obligation to produce accurate financial statements
The duty of a business to consider the interests of society and the environment alongside profit (Correct answer)

Correct answer: The duty of a business to consider the interests of society and the environment alongside profit

Corporate social responsibility (CSR) means a business acts ethically and considers its impact on society, the environment and stakeholders beyond just shareholders.

Question 5: In absorption costing, if actual production exceeds budgeted production, what happens to fixed overheads?

They are under-absorbed
They are over-absorbed (Correct answer)
They are excluded from the cost card
They remain the same as budgeted

Correct answer: They are over-absorbed

When actual production exceeds budget, more overhead is absorbed (actual units × OAR) than was actually incurred. This results in over-absorption — a favourable situation that increases reported profit.

Question 6: The UK Corporate Governance Code recommends that the board of a listed company should include:

Only family members of the founder
A sufficient number of independent non-executive directors to provide effective challenge (Correct answer)
External auditors as board members
Only executive directors to ensure operational expertise

Correct answer: A sufficient number of independent non-executive directors to provide effective challenge

The UK Corporate Governance Code recommends that at least half the board (excluding the chair) should be independent non-executive directors. They provide independent judgement, challenge executive management, and protect shareholder interests.

Question 7: What is the primary role of the audit committee?

To set the strategic direction of the company
To prepare the annual financial statements
To manage the day-to-day operations of the business
To oversee the financial reporting process, internal controls, and the external audit (Correct answer)

Correct answer: To oversee the financial reporting process, internal controls, and the external audit

The audit committee oversees the integrity of financial reporting, reviews internal controls and risk management systems, monitors the external audit process, and ensures the independence of auditors. It does not prepare accounts or manage operations.

Question 8: Under IAS 1 Presentation of Financial Statements, which of the following is NOT a component of a complete set of financial statements?

Statement of profit or loss and other comprehensive income
Statement of cash flows
Tax computation (Correct answer)
Statement of financial position

Correct answer: Tax computation

IAS 1 requires five components: statement of financial position; statement of profit or loss and other comprehensive income; statement of changes in equity; statement of cash flows; and notes. A tax computation is not a required financial statement under IAS 1.

Question 9: Which of the following errors would be revealed by a trial balance?

A compensating error where two errors of equal and opposite amount cancel out
An error of commission where a debit is posted to the wrong personal account
An error of omission where a transaction is completely left out
A single-sided entry where only the debit has been recorded (Correct answer)

Correct answer: A single-sided entry where only the debit has been recorded

A single-sided entry means only one side of the double entry has been recorded, causing total debits to not equal total credits. The trial balance will not balance, revealing the error. The other three errors maintain equal debits and credits.

Question 10: In project management, what does a Gantt chart primarily display?

The risk register for the project
The financial budget allocated to each project phase
The schedule of project activities against time (Correct answer)
The organisational hierarchy of project team members

Correct answer: The schedule of project activities against time

A Gantt chart is a horizontal bar chart that displays project tasks or activities along a timeline. It shows start dates, end dates, durations, and dependencies, making it a key tool for scheduling and tracking progress.

Question 11: According to the ACCA Code of Ethics and Conduct, which of the following is one of the five fundamental principles?

Cost minimisation
Professional competence and due care (Correct answer)
Market dominance
Profit maximisation

Correct answer: Professional competence and due care

The five fundamental principles in the ACCA Code are: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. Profit maximisation, cost minimisation, and market dominance are not ethical principles.

Question 12: Under IAS 2 Inventories, which of the following should be included in the cost of inventory?

Selling costs
Storage costs of finished goods awaiting sale
Abnormal waste of materials
Costs of conversion including production overheads based on normal capacity (Correct answer)

Correct answer: Costs of conversion including production overheads based on normal capacity

IAS 2 states that inventory cost includes costs of purchase, costs of conversion, and other costs incurred in bringing inventories to their present location and condition. Conversion costs include production overheads allocated based on normal capacity. Selling costs, post-production storage, and abnormal waste are excluded.

Question 13: Which of the following best describes a rolling (continuous) budget?

A budget prepared from scratch each year with no reference to previous budgets
A budget that only covers capital expenditure
A budget that is continuously updated by adding a new period as the most recent period expires (Correct answer)
A budget that is set once and never revised

Correct answer: A budget that is continuously updated by adding a new period as the most recent period expires

A rolling budget is continuously updated so that it always covers a fixed future period (e.g., 12 months). As one month or quarter passes, a new month or quarter is added at the end, keeping the budget current and forward-looking.

Question 14: What is the purpose of a flexible budget?

To set individual employee performance targets
To forecast sales for the next five years
To adjust budgeted costs and revenues to reflect the actual level of activity achieved (Correct answer)
To remain unchanged regardless of actual activity levels

Correct answer: To adjust budgeted costs and revenues to reflect the actual level of activity achieved

A flexible budget adjusts the original budget figures to reflect the actual level of activity. This provides a more meaningful basis for comparing actual costs against what should have been spent at the actual activity level, improving cost control.

Question 15: Which of the following describes a step cost?

A cost that remains fixed over a range of activity but jumps to a higher level once that range is exceeded (Correct answer)
A cost that increases in direct proportion to output
A cost that decreases as output increases
A cost that fluctuates randomly with no pattern

Correct answer: A cost that remains fixed over a range of activity but jumps to a higher level once that range is exceeded

A step cost (or step-fixed cost) remains constant within a relevant range of activity but increases by a discrete amount when activity exceeds that range — for example, hiring an additional supervisor when production exceeds capacity.

Question 16: Which of the following is a source document in the purchase cycle?

Remittance advice
Bank statement
Supplier invoice (Correct answer)
Petty cash voucher

Correct answer: Supplier invoice

A supplier invoice is the primary source document evidencing a purchase transaction, triggering the accounting entries and forming the basis for payment.

Question 17: Which type of organisational culture, as described by Handy, is characterised by a dominant central figure and few rules or procedures?

Task culture
Person culture
Power culture (Correct answer)
Role culture

Correct answer: Power culture

Handy's power culture is characterised by a central power source (often a single dominant individual) with few formal rules. Decisions radiate from the centre, and the organisation depends on trust and personal communication.

Question 18: Which of the following best describes 'big data' in a business context?

A database containing only customer contact details
Extremely large and complex data sets that require advanced analytical methods to extract value (Correct answer)
Any data stored on a company's local server
Financial statements prepared under IFRS

Correct answer: Extremely large and complex data sets that require advanced analytical methods to extract value

Big data refers to extremely large, complex data sets — often characterised by volume, velocity, variety, veracity, and value — that cannot be processed effectively using traditional methods and require advanced analytics.

Question 19: A 'scalar chain' in an organisation refers to:

The sequence of budget approvals
A supply chain linking raw materials to finished goods
A chain of retail stores
The formal line of authority from top to bottom of the hierarchy (Correct answer)

Correct answer: The formal line of authority from top to bottom of the hierarchy

The scalar chain (Fayol) is the unbroken line of authority running from the top of the organisation to the lowest level, defining the chain of command.

Question 20: Under the UK Bribery Act 2010, which of the following would constitute an offence?

Giving a promotional gift worth £5 at a trade fair
Providing hospitality at a sporting event that is proportionate and reasonable
Making a payment to a foreign official to secure a government contract (Correct answer)
Offering a discount to a long-standing customer

Correct answer: Making a payment to a foreign official to secure a government contract

The UK Bribery Act 2010 makes it an offence to bribe a foreign public official to obtain or retain business. Proportionate hospitality and modest promotional gifts are generally not offences.

Question 21: The accounting equation is:

Assets = Liabilities − Equity
Assets = Liabilities + Equity (Correct answer)
Liabilities = Assets + Equity
Equity = Assets + Liabilities

Correct answer: Assets = Liabilities + Equity

The fundamental accounting equation is: Assets = Liabilities + Equity. This must always balance, reflecting double-entry bookkeeping.

Question 22: The fixed overhead capacity variance measures:

The difference between actual fixed overheads and absorbed fixed overheads
The difference between actual hours worked and budgeted hours, valued at the standard rate (Correct answer)
The difference between actual and standard fixed overhead rates per unit
The difference between standard hours for actual output and actual hours worked

Correct answer: The difference between actual hours worked and budgeted hours, valued at the standard rate

Capacity variance = (Actual hours worked – Budgeted hours) × Standard fixed overhead rate per hour, reflecting whether the workforce was active for more or fewer hours than budgeted.

Question 23: In a statement of cash flows prepared under IAS 7, where is 'interest paid' classified under the indirect method?

It may be classified as either an operating or a financing activity (Correct answer)
It must always be classified as a financing activity
It is excluded from the statement of cash flows
It must always be classified as an operating activity

Correct answer: It may be classified as either an operating or a financing activity

IAS 7 allows flexibility in classifying interest paid. It may be classified as an operating activity (as it enters into the determination of profit) or as a financing activity (as it is a cost of obtaining financial resources). The entity must apply its chosen classification consistently.

Question 24: Which of the following is a characteristic of an entrepreneurial structure?

A wide span of control at middle management level
Extensive rules and procedures governing employee behaviour
Decision-making concentrated at the top with the owner-manager (Correct answer)
Heavy reliance on technostructure for standardisation

Correct answer: Decision-making concentrated at the top with the owner-manager

An entrepreneurial structure is typified by centralised decision-making by the owner-manager, with few formal rules, minimal hierarchy, and direct supervision as the primary coordinating mechanism.

Question 25: Which of the following is an example of a 'tall' vs 'flat' structural trade-off?

Flat structures have wider spans of control but fewer promotion opportunities (Correct answer)
Tall structures are always more cost-effective
Flat structures always produce better financial results
Tall structures have faster communication but less control

Correct answer: Flat structures have wider spans of control but fewer promotion opportunities

Flat structures give managers wide spans, improving communication speed, but offer fewer management tiers, reducing promotion opportunities for staff.

Question 26: What is the principal budget factor?

The factor that limits the overall level of activity for the budget period (Correct answer)
The budget that is prepared first in the budgeting process regardless of circumstances
The factor that has no impact on the budget
The cost that represents the highest proportion of total expenditure

Correct answer: The factor that limits the overall level of activity for the budget period

The principal budget factor (also called the limiting factor or key budget factor) is the factor that constrains the organisation's activities. It is identified first because all other budgets are built around this constraint — commonly sales demand, but could be labour, materials, or machine capacity.

Question 27: A business pays £1,200 for insurance covering the next 12 months. At the end of the first month, what adjusting entry is needed?

Debit Insurance Expense £1,200, Credit Prepayments £1,200
Debit Insurance Expense £100, Credit Prepayments £100 (Correct answer)
Debit Prepayments £100, Credit Insurance Expense £100
Debit Cash £1,200, Credit Insurance Expense £1,200

Correct answer: Debit Insurance Expense £100, Credit Prepayments £100

The £1,200 covers 12 months, so £100 per month. After one month, £100 has been used (debit Insurance Expense) and the prepaid asset reduces by £100 (credit Prepayments). The remaining £1,100 stays as a prepayment.

Question 28: A company has revenue of £800,000, cost of sales of £480,000, distribution costs of £60,000, administrative expenses of £80,000, and finance costs of £20,000. What is the profit before tax?

£180,000
£260,000
£320,000
£160,000 (Correct answer)

Correct answer: £160,000

Gross profit = £800,000 − £480,000 = £320,000. Operating profit = £320,000 − £60,000 − £80,000 = £180,000. Profit before tax = £180,000 − £20,000 = £160,000.

Question 29: A company has a standard material usage of 5 kg per unit at £3/kg. Actual production was 100 units using 520 kg. What is the material usage variance?

£156 favourable
£156 adverse
£60 favourable
£60 adverse (Correct answer)

Correct answer: £60 adverse

Standard quantity for actual output = 100 × 5 = 500 kg; variance = (500 – 520) × £3 = £60 adverse.

Question 30: Which of the following is a characteristic of a 'profit centre'?

It is measured solely on return on capital employed
It has no budget
It is accountable for both revenues and costs (Correct answer)
It is responsible only for costs incurred

Correct answer: It is accountable for both revenues and costs

A profit centre is responsible for both revenues and costs, so its performance is measured by the profit it generates, unlike a cost centre which tracks costs only.

Question 31: A business purchases office furniture for £3,000 on credit. What is the correct double entry?

Debit Furniture £3,000, Credit Capital £3,000
Debit Trade Payables £3,000, Credit Furniture £3,000
Debit Furniture £3,000, Credit Trade Payables £3,000 (Correct answer)
Debit Cash £3,000, Credit Furniture £3,000

Correct answer: Debit Furniture £3,000, Credit Trade Payables £3,000

When an asset is acquired on credit, the asset account (Furniture) is debited to reflect the increase, and Trade Payables is credited to reflect the liability owed to the supplier.

Question 32: Sustainability reporting under frameworks such as GRI (Global Reporting Initiative) requires disclosure of:

Only financial performance metrics
Environmental, social, and governance (ESG) impacts alongside financial performance (Correct answer)
Only the company's carbon emissions
Trade secrets and proprietary information

Correct answer: Environmental, social, and governance (ESG) impacts alongside financial performance

Sustainability reporting frameworks like GRI require organisations to report on their environmental, social, and governance impacts — including carbon emissions, labour practices, human rights, anti-corruption, and community engagement — alongside traditional financial metrics.

Question 33: Which of the following best describes a 'flat' organisational structure?

Many levels of hierarchy and narrow spans of control
A structure based purely on geographic regions
Few levels of hierarchy and wide spans of control (Correct answer)
A structure with no formal reporting lines

Correct answer: Few levels of hierarchy and wide spans of control

A flat structure has few management layers and each manager oversees many subordinates (wide span of control), enabling faster communication.

Question 34: Zero-based budgeting (ZBB) requires managers to:

Justify every item of expenditure from a zero base for each new period (Correct answer)
Set all budgets at zero and wait for actual costs to emerge
Only budget for new projects and ignore ongoing activities
Simply adjust last year's budget by an inflation percentage

Correct answer: Justify every item of expenditure from a zero base for each new period

ZBB starts from scratch each budget period. Every activity and its associated costs must be justified as if it were new, rather than simply rolling forward last year's figures. This helps identify and eliminate unnecessary spending.

Question 35: The purpose of splitting variances into planning and operational components is to:

Replace standard costing with activity-based costing in modern businesses
Allocate responsibility for all variances equally between all departments
Eliminate all variances by revising the standard every month to match actuals
Separate variances caused by poor original planning from those caused by operational performance (Correct answer)

Correct answer: Separate variances caused by poor original planning from those caused by operational performance

Planning variances reflect changes between the original and revised standard due to environmental changes, while operational variances measure actual performance against the revised standard.

Question 36: Which of the following accounts would normally have a credit balance?

Trade receivables
Bank overdraft (Correct answer)
Motor vehicles
Prepaid expenses

Correct answer: Bank overdraft

A bank overdraft is a liability — the business owes money to the bank. Liabilities carry credit balances; assets normally carry debit balances.

Question 37: A business receives a telephone bill for £350 but has not yet paid it. What is the correct double entry?

Debit Telephone Expense £350, Credit Accruals £350 (Correct answer)
Debit Accruals £350, Credit Telephone Expense £350
Debit Prepayments £350, Credit Cash £350
Debit Cash £350, Credit Telephone Expense £350

Correct answer: Debit Telephone Expense £350, Credit Accruals £350

The expense has been incurred (debit Telephone Expense) but not yet paid, creating a liability (credit Accruals). This applies the accruals concept — matching the expense to the period in which it was incurred regardless of payment timing.

Question 38: The primary objective of a private sector company is generally considered to be:

Maximising employee welfare
Minimising tax liabilities
Maximising shareholder wealth (Correct answer)
Achieving the largest market share

Correct answer: Maximising shareholder wealth

In traditional financial theory, the primary objective of a company is to maximise shareholder wealth (value), though this must be balanced with stakeholder and ethical considerations.

Question 39: What is the primary purpose of corporate governance?

To reduce the number of employees in an organisation
To eliminate all business risk
To maximise short-term profits at all costs
To provide a framework of rules and practices by which a board ensures accountability, fairness, and transparency (Correct answer)

Correct answer: To provide a framework of rules and practices by which a board ensures accountability, fairness, and transparency

Corporate governance establishes a system of rules, practices, and processes by which a company is directed and controlled. Its purpose is to balance the interests of stakeholders and ensure accountability, fairness, and transparency.

Question 40: According to Tuckman's model, which stage of group development involves conflict and disagreement as members establish their roles?

Norming
Forming
Performing
Storming (Correct answer)

Correct answer: Storming

Storming is the second stage of Tuckman's model, characterised by conflict, power struggles, and disagreements as team members challenge each other and resist the group structure.

Question 41: A customer pays £500 to settle an outstanding invoice. What is the double entry in the supplier's books?

Debit Revenue £500, Credit Cash £500
Debit Cash £500, Credit Trade Receivables £500 (Correct answer)
Debit Cash £500, Credit Revenue £500
Debit Trade Receivables £500, Credit Cash £500

Correct answer: Debit Cash £500, Credit Trade Receivables £500

When a customer settles an outstanding debt, Cash (asset) is debited to reflect the money received, and Trade Receivables (asset) is credited to remove the amount owed by the customer.

Question 42: Under IAS 10 Events After the Reporting Period, which of the following is an adjusting event?

A decline in market value of investments after the reporting date
The settlement after the reporting date of a court case that confirms an obligation existed at the reporting date (Correct answer)
A major fire destroys a warehouse after the reporting date
The announcement of a major acquisition after the reporting date

Correct answer: The settlement after the reporting date of a court case that confirms an obligation existed at the reporting date

An adjusting event provides evidence of conditions that existed at the reporting date. Settlement of a court case confirms a liability that existed at year end, so the financial statements should be adjusted. The other events are non-adjusting — they relate to conditions arising after the reporting date.

Question 43: In the context of budgeting, what is budgetary slack?

The gap between the budget period start and end dates
The time delay in preparing the budget
An underestimate of revenues or overestimate of costs deliberately built into a budget by managers (Correct answer)
The variance between budgeted and actual fixed costs

Correct answer: An underestimate of revenues or overestimate of costs deliberately built into a budget by managers

Budgetary slack occurs when managers deliberately underestimate revenues or overestimate costs to make targets easier to achieve. This is a behavioural problem that undermines the accuracy and usefulness of budgets.

Question 44: Which of the following is a disadvantage of incremental budgeting?

It requires extensive management time to prepare
It may perpetuate past inefficiencies and unnecessary spending (Correct answer)
It automatically eliminates inefficiencies from prior periods
It forces managers to justify every item of expenditure

Correct answer: It may perpetuate past inefficiencies and unnecessary spending

Incremental budgeting takes the previous period's budget as its starting point and adjusts it. This can perpetuate existing inefficiencies, waste, and budgetary slack because past spending is rarely questioned — it is simply carried forward.

Question 45: A suspense account is used when:

The business wants to hide transactions from auditors
Trade receivables become irrecoverable
The bookkeeper cannot determine the correct account for a transaction or the trial balance does not balance (Correct answer)
The business has excess cash that needs to be invested

Correct answer: The bookkeeper cannot determine the correct account for a transaction or the trial balance does not balance

A suspense account is a temporary account used when the bookkeeper is unsure where to post a transaction or when the trial balance does not balance and the error cannot be found immediately. It is cleared once the correct treatment is determined.

Question 46: A company's budgeted sales are £500,000. 60% of customers pay in the month of sale and 40% pay in the following month. Opening trade receivables are £80,000. What are the budgeted cash receipts for the month?

£500,000
£340,000
£380,000 (Correct answer)
£300,000

Correct answer: £380,000

Cash receipts from current month sales = £500,000 × 60% = £300,000. Cash receipts from prior month (opening receivables) = £80,000. Total cash receipts = £300,000 + £80,000 = £380,000.

Question 47: Under IAS 16 Property, Plant and Equipment, which of the following costs should be included in the initial measurement of a purchased machine?

Costs of relocating the machine to a different factory after initial installation
Advertising costs for products made by the machine
Import duties and non-refundable purchase taxes (Correct answer)
Staff training costs for operating the machine

Correct answer: Import duties and non-refundable purchase taxes

IAS 16 requires that the cost of an item of PPE includes its purchase price plus import duties and non-refundable taxes, plus any directly attributable costs of bringing the asset to working condition. Training, relocation after use, and advertising are not directly attributable.

Question 48: A business owner introduces £15,000 of personal savings into the business. What is the double entry?

Debit Drawings £15,000, Credit Cash £15,000
Debit Capital £15,000, Credit Cash £15,000
Debit Cash £15,000, Credit Capital £15,000 (Correct answer)
Debit Cash £15,000, Credit Revenue £15,000

Correct answer: Debit Cash £15,000, Credit Capital £15,000

When the owner introduces capital, the business receives cash (debit Cash to increase the asset) and the owner's claim on the business increases (credit Capital to increase equity).

Question 49: Which of the following is the correct sequence for preparing functional budgets?

Production budget → Sales budget → Materials budget → Cash budget
Sales budget → Production budget → Materials and labour budgets → Cash budget (Correct answer)
Materials budget → Production budget → Sales budget → Cash budget
Cash budget → Sales budget → Production budget → Materials budget

Correct answer: Sales budget → Production budget → Materials and labour budgets → Cash budget

The budgeting process typically starts with the sales budget (assuming sales is the principal budget factor), then derives the production budget, followed by materials, labour, and overhead budgets. The cash budget is one of the last to be prepared as it draws on all other budgets.

Question 50: Which cost classification is most relevant when deciding whether to shut down a product line?

Relevant (incremental) cost (Correct answer)
Absorbed overhead
Historical cost
Sunk cost

Correct answer: Relevant (incremental) cost

Relevant costs are future incremental cash flows that change as a result of a decision; sunk costs are past and irrelevant. Shutdown decisions focus on relevant costs and revenues.

Question 51: If actual profit exceeds budgeted profit, what must be true of the net total of all variances for the period?

The net total of all variances must be favourable (Correct answer)
The net total must be zero as the budget should always balance
The variances are immaterial and can be ignored
The net total of all variances must be adverse

Correct answer: The net total of all variances must be favourable

All variances together bridge budgeted profit to actual profit; if actual profit exceeds the budget, the net effect of all variances must be favourable.

Question 52: Which of the following best describes 'professional scepticism' in the context of accountancy?

Assuming all management representations are false
Refusing to accept any information provided by management
Maintaining a questioning mind and critically assessing evidence (Correct answer)
Avoiding difficult conversations with clients

Correct answer: Maintaining a questioning mind and critically assessing evidence

Professional scepticism means having a questioning mind, being alert to conditions that may indicate misstatement, and critically evaluating audit evidence.

Question 53: The sales day book is used to record:

All cash sales made during the period
Returns from customers
All credit sales invoices issued during the period (Correct answer)
Payments received from credit customers

Correct answer: All credit sales invoices issued during the period

The sales day book (or sales journal) is a book of prime entry used to record credit sales invoices before they are posted to the sales ledger and general ledger. Cash sales are recorded in the cash book, and returns go in the sales returns day book.

Question 54: In Mintzberg's organisational configurations, which structure is characterised by a dominant strategic apex with centralised decision-making?

Adhocracy
Machine bureaucracy
Simple structure (Correct answer)
Professional bureaucracy

Correct answer: Simple structure

Mintzberg's simple structure features a dominant strategic apex (typically the owner/founder) who makes all key decisions centrally, with minimal middle management and little formalisation.

Question 55: Which of the following is a purpose of budgeting?

To calculate the tax liability for the year
To plan, coordinate and control business activities (Correct answer)
To value inventory for the balance sheet
To eliminate all variable costs

Correct answer: To plan, coordinate and control business activities

Budgets serve multiple purposes: planning future activities, coordinating departments, communicating targets, motivating managers, and providing a basis for control through variance analysis.

Question 56: Which of the following best describes the agency problem in corporate governance?

The conflict between a company and its suppliers over payment terms
The difficulty of finding a suitable advertising agency
The conflict arising when directors (agents) may pursue their own interests rather than those of shareholders (principals) (Correct answer)
The challenge of recruiting new board members

Correct answer: The conflict arising when directors (agents) may pursue their own interests rather than those of shareholders (principals)

The agency problem arises because directors (agents) are entrusted to run the company on behalf of shareholders (principals), but may have different objectives — such as prioritising their own remuneration, job security, or empire-building over shareholder wealth maximisation.

Question 57: What does the acronym PESTEL stand for in the context of environmental analysis?

Planning, Execution, Sourcing, Training, Evaluation, Leadership
Price, Earnings, Sales, Tax, Equity, Liability
Production, Efficiency, Strategy, Technology, Employment, Logistics
Political, Economic, Social, Technological, Environmental, Legal (Correct answer)

Correct answer: Political, Economic, Social, Technological, Environmental, Legal

PESTEL analysis examines the macro-environmental factors affecting an organisation: Political, Economic, Social, Technological, Environmental, and Legal. It is a widely used framework in strategic analysis.

Question 58: Which of the following is a direct cost of producing a table?

Wood used in the table (Correct answer)
Salary of the factory supervisor
Depreciation of factory machinery
Factory rent

Correct answer: Wood used in the table

A direct cost is one that can be specifically traced to a cost unit. Wood used in making a table is directly attributable to that table. Factory rent, supervisor salary, and machinery depreciation are indirect costs (overheads).

ACCA Applied Knowledge Exam

The ACCA Applied Knowledge level comprises three computer-based exams: Business and Technology (BT), Management Accounting (MA), and Financial Accounting (FA), awarded by the Association of Chartered Certified Accountants. The exams introduce core knowledge in business operations and management, costing and budgeting, double entry bookkeeping, and preparation of financial statements, alongside business ethics and governance.

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