MCQ Questions

Question 1

Which of the following statements is false in relation to partial budgets?

• A partial budget examines the revenue and costs affected by a marginal change in
  the farm business
• A partial budget shows the expected change in profit
• A partial budget includes all expected revenues and expenses for all farm enterprises
• None of these answers are false

Answer 1

• A partial budget includes all expected revenues and expenses for all farm enterprises

Question 2

Which one of the statements below could be a general definition of opportunity cost?

• The cost of giving up a less profitable enterprise
• The cost of using cheaper inputs
• The opportunity to change enterprises to make more money

-The return from the best alternative use of that capital

Answer 2

-The return from the best alternative use of that capital

Question 3

The depreciation method applied to a fixed asset (i.e. straight line or reducing balance
method), is generally determined by:

• The type of asset that it is
• Other
• The monetary value of the asset
• The expected useful life of the asset

Answer 3

• The type of asset that it is

Question 4

When preparing an Enterprise gross margin account, which of the following would
not be regarded as a variable cost?

• Feed costs
• Sprays
• Farm Insurance, machinery running costs, electric, water, farm maintenance, labour,
  interest, admin and professional fees
• AI
• Verterinary

Answer 4

• Farm Insurance, machinery running costs, electric, water, farm maintenance, labour,
  interest, admin and professional fees

Question 5

Which of the following decisions would not be regarded as an operational farm
decision:

• Concentrate feeding levels
• Purchase additional land
• None of these
• Fertiliser application rates

Answer 5

• Purchase additional land

Question 6

For stock valuation purposes in farm accounts, pigs are typically valued at which of
the follow
Rates:

• 75% of market value
• 50% of market value
• 60% of market value
• 100% of market value

Answer 6

• 75% of market value

Question 7

A dishonoured cheque can cause the farmer’s bank account balance to be different to
the bank statement’s balance

• True
• False

Answer 7

• True

Question 8

Which of the following would not be regarded as a way to increase farm profit.

Answer 8

• Substitute lower gross margin enterprises for higher gross margin enterprises
• Decrease fixed costs

Question 9

What is a “contra” account? (Briefly explain)

Answer 9

• A contra account is an account that is used when a farmer owes money to a supplier
  and the supplier also owes money to the farmer for goods provided by the farmer -
  e.g. farmer sells milk to the Co-op but also buys feed from the co-op

Question 10

A direct debit of €2,300 has been recorded in the farmer’s income and expenditure
account in respect of farm vehicle repairs (expense).
At the start of the year there was farm vehicle repairs (expense) due of €300.
At the end of the year there was farm vehicle repairs (expense) due of €1.200.
The value of the farm vehicle repairs expense, to be included in the Profit & Loss
Account, for period is:
- 1,400
- 3,200
- 3,800
- 800

Answer 10

• 3,200

Question 11

Which of the following is false:

• A whole farm budget includes all expected revenues and expenses for all of the
  farms revenues
• A whole farm budget is used where a decision will involve minor and or major
  changes to the restructure and organisation
• Whole farm budgeting is typically about identifying new ideas for the farm
• The total expected farm profit is estimated by the whole farm budget

Answer 11

• A whole farm budget includes all expected revenues and expenses for all of the
  farms revenues

Question 12

When a debtor can no longer pay their debt the only transaction/adjustment required
in the accounts is to record the debt as an expense in the profit and loss account

• True
• False

Answer 12

• False

Question 13

A lodgement of €550 is correctly recorded in the bank statement
This same lodgement is recorded as €550 in the farmers cashbook account in their
books and records
How would you resolve the issue when preparing a bank reconciliation?

• In the farmers cash book account record £45 on the credit side (ride hand side)
• In the bank account statement record £45 in the add deposits section
• In the farmers cash book account record £45 on the debit side (left hand side)

Answer 13

• In the farmers cash book account record £45 on the credit side (ride hand side)

Question 14

Identify one limitation of a benchmarking approach when analysing farm
performance:

Answer 14

• Difficulty of obtaining exact and fair comparisons between farms due to differences in
  Infrastructure mechanisation facilities EG. Land type quality fragmentation tenure,
  Farming System, Level of indebtedness

Question 15

List two ways a business would be selected for a revenue audit

Answer 15

• Suspicion raised from tax returns
• A business can be reported to revenue- “tip off” situation

Question 16

Using the following financial data, calculate the correct value for the Enterprise Net
Margin for the Lamb Rearing Enterprise:
Opening stock valuation €20,000
Closing stock valuation €28,000
Lambs sold to factory €41,000
Lamb slaughtered for home consumption €210
Lambs transferred to breeding ewe enterprise €2,500
Total variable costs €25,750
Total fixed costs €12,450

Sales 41000
+ Transferred out 2500
+ Home consumption 210
+ Closing 28000
- Opening (20000)
=
● 25,960
● 23,460
● 13,510
● (5,200)

Answer 16

Gross margin 51710
Gross margin - VC - FC = Net Margin
35710 - 25750 - 12450 = 13510

● 13,510

Question 17

A loan of 3 years duration would be included in the balance sheet as a:

● Current Asset
● Fixed Asset
● Current Liability
● Long Term Liability

Answer 17

● Long Term Liability

Question 18

The closing cash balance in a cash budget is calculated by:

● Cash inflows minus cash outflows

● Cash inflows plus cash outflows

● Cash inflows minus cash outflows plus opening cash balance

● Cash inflows plus cash outflows plus opening cash balance

● Cash inflows minus cash outflows minus opening cash balance

● Cash inflows plus cash outflows minus opening cash balance

Answer 18

● Cash inflows minus cash outflows plus opening cash balance

Question 19

In your own words, identify two weakness/limitation of ratio analysis when analysing
a farm accounts

Answer 19

• Ratios do not allow for seasonal fluctuations
• Incomplete as they fail to consider any non cash benefits that have accrued during
  the accounting year.

Question 20

When preparing an Enterprise Gross Margin Account, which of the following would
not be regarded as a fixed cost:

● Fertiliser costs
● Farm administration costs
● Farm insurance costs
● Machinery running costs

Answer 20

● Fertiliser costs

Question 21

What type(s) of data should be “normalised” for inclusion in a budget?

Answer 21

** Technical and financial data used in budgets should be normalised projections **

It is important to “normalise” price and yield data in profitability budgets

Question 22

Prepaid income at the year end is recorded in the Balance Sheet as a:

● Long Term Liability
● Current Asset
● Fixed Asset
● Current Liability

Answer 22

● Current Liability

Question 23

List 3 advantages of preparing Enterprise Gross Margin Accounts for a farm:

Answer 23

● Enables the performance of individual farm enterprises to be assessed
-Detailed management information

-Identifies strengths and weaknesses

● Can be used to benchmark performance

-Comparative analysis with similar farms

● Encourages high quality record keeping

Question 24

Definition of opportunity cost
Opportunity Cost -

Answer 24

the return from the best alternative use of that capital

Question 25

What scenarios would lead you to make a whole farm budget?

Answer 25

● WFB used where a decision will involve a major change in farm organisation and structure (affecting most or all the farm enterprises and resources) ● WFB is often about identifying new ideas for the farm (business strategy) ● estimates total expected farm profit ● Usually associated with significant farm restructuring/adjustment ● Typically used when major re-planning of the farm business required: ○ Major expansion/development ○ Purchasing/inheriting a new farm ○ Debt crisis ○ Injury/illness

Question 26

Receipts to the value of €1,800 have been recorded in the farmers income and expenditure account in respect of the rental income - At the start of the year there was prepaid rent income of £250 - At the end of the year there was rent income prepaid of £800 The value for rental income, to be included in the Profit and Loss account for the period is: - 2850 - 750 - 1800 - 1250 - 2350

Answer 26

- 1250

Question 27

Reasons why bank Recs are needed? (2)

Answer 27

1. Check the accuracy of the bank account by agreeing balance to bank statement 2. Identify any bank account errors or omissions

Question 28

Standing order:

Answer 28

a firm can instruct a bank to pay regular amounts of money at stated dates to persons or other firms

Question 29

Direct debit:

Answer 29

a firm can allow creditors permission to obtain funds directly from the firm’s bank accounts - which allows the amount collected to vary.

Question 30

BAC (Banks Automated Clearing System):

Answer 30

a method of making payments electronically with funds taking up to three days to clear. Entered on day 1, processed on day 2, and cleared on day 3.

Question 31

What’s the difference between cash accounting systems and accrual accounting systems?

Answer 31

Cash accounting systems: - Record payments and receipts when cash is paid or received. - Measure business cash flow - Can be erratic, inconsistent measure of operational performance form year to year Accruals accounting systems: - Revenue and expenses matched to period in which they are incurred, regardless of when cash changes hands - Adjustments are made for - Creditors and debtors - Payments and accruals - Drawings - Depreciation of fixed assets are included in accrual accounting systems

Question 32

What is a debtor?

Answer 32

Accounts owed to the business at the end of the financial year. E.g payments for milk supplied in Dec. will not be received until Jan.

Question 33

What is a creditor?

Answer 33

Accounts owed by the business at the end of the financial year. E.g dairy feed may have been purchased in Dec. but merchants did not pay until Feb.

Question 34

Name and explain the two main methods of depreciation:

Answer 34

1. Straight line: charges an equal amount of depreciation to each period. Typically used for buildings and land, assets with a residual value of 0 and an estimated life of 10-20yrs. 2. Reducing Balance: depreciation rate is expressed at a % and applied to the reducing balance of an asset. It is the written down value after deduction of the cumulative depreciation in previous years. It results in a much higher level of depreciation in early years of asset life and lower in later years. Typically used for vehicles and machinery.

Question 35

Gross Margin Accounts - Variable Costs: - Vary roughly in direct proportion changes in the size/output/activity of enterprise - Feed costs, fertiliser, veterinary & AI, sprays - Can be readily allocated to specific enterprises based on use - Cease to be incurred if stopped the enterprise

Answer 35

- Feed costs, fertiliser, veterinary & AI, sprays - Can be readily allocated to specific enterprises based on use

Question 36

Q: A farmer has land that is suitable only for beef cattle or sheep production. The farmer’s beef enterprise produces a net margin of €250 per hectare, while her sheep enterprise produces a net margin of €300 per hectare. A further alternative is to rent out the land to a neighbouring farmer for €350 per hectare. Assuming that the farmer will reduce his/her beef enterprise by 10 hectares, what is the opportunity cost of increasing sheep by 10 hectares? i) €2500 ii) €3500 iii) €500 iv) €1000

Answer 36

350-250=100X10

Question 37

Q: Which of the following is not a characteristic of a farm variable cost? i) They vary in proportion with the size of enterprise ii) They are readily allocated to specific farm enterprise iii) They would cease to be incurred if the enterprise ended iv) They are sunk costs

Answer 37

iv) They are sunk costs

Question 38

Q: The balance sheet equation is: i) Assets= Expenses + revenue ii) Assets= Cash + Net Worth iii) Assets= Net Worth + Liabilities iv) Assets= Expenses + Capital

Answer 38

iii) Assets= Net Worth + Liabilities

Question 39

Q: The Current Ratio is defined as.... i) Liquid Current Assets divided by current liabilities ii) Farm debt divided by total assets iii) Current assets divided by Current liabilities iv) Net worth divided by total assets

Answer 39

iii) Current assets divided by Current liabilities

Question 40

Barry’s Wheat enterprise for year ending 31 December 2011 (TABLE 1) Opening Valuation €7,000 Closing Valuation €8,000 Grain Sold €5,000 Grain Transferred out to dairy enterprise €10,000 Straw transferred out to beef enterprise €4,000 Fertiliser €6,000 Contractor Charges-Cultivation €2,000 Seed, Sprays. Sundry €3,000 Q: Using the information on table 1, what is the value of the Enterprise Output for Barry’s Wheat enterprise? i) €20,000 ii) €19,000 iii) €16,000 iv) €9,000

Answer 40

(OUTPUT-CLOSING-OPENING) i) €20,000

Question 41

Q: Using the information in Table 1, what is the value of the Enterprise Gross Margin for Barry’s Wheat enterprise? i) €8,000 ii) €9,000 iii) €5,000 iv) €11,000

Answer 41

ii) €9,000

Question 42

The Acid Test Ratio or a farm business is a measure of: i) Profitability ii) Liquidity iii) Efficiency iv) Solvency

Answer 42

ii) Liquidity

Question 43

Q: Which of the following is a correct characteristic describing the use of a partial budget? i) A partial budget measures every return and cost charge, whether increased, decreased, or stays the same ii) A partial budget analyses how a change in a certain farm enterprise affects the farm operation’s profits iii) A partial budget demonstrates the effect that various prices, yields, and costs have on the farm’s equity iv) A partial budget determines the loan repayment capacity of a farm business for the next year

Answer 43

ii) A partial budget analyses how a change in a certain farm enterprise affects the farm operation’s profits

Question 44

Q: Which of the following describes the advantages of a Cash Flow Budget in farm financial management? i) Determines when the farm business needs to borrow money during the year ii) Shows how the cash income of the farm is being spent for what use during the year iii) Shows when the farm business can increase its cash spending (purchases) without additional borrowing iv) All of the above are appropriate advantages for using a Cash Flow Budget

Answer 44

iv) All of the above are appropriate advantages for using a Cash Flow Budget

Question 45

Q: The Cost Benefit principle requires that i) The extra benefit from taking an action should exceed the extra cost incurred ii) The farmer ensures that total farm revenue exceeds total farm costs iii) The farmer benefits from shopping around to lower the cost of inputs iv) The price the farmer receives should exceed the production costs

Answer 45

i) The extra benefit from taking an action should exceed the extra cost incurred

Question 46

Q: Opportunity costs arise in farm production because i) Farmers have few feasible alternatives ii) Input prices are high iii) Resources must be shifted away from producing one good in order to produce another iv) Resources are unlimited

Answer 46

Resources must be shifted away from producing one good in order to produce another

Question 47

Q: A farmer invested in a new building costing €20,000 in 2009. It is to be fully depreciated over 10 years using the Straight Line method. What is the Written Down Value (WDV) at the year-end 2011? i) €2,000 ii) €14,000 iii) €6,000 iv) Some other figure

Answer 47

15% each year, 15% of 20,000 = 3,000. 3,000 X 2= 6,000. 29,000- 6,000=14,000.

Question 48

1) Which of the following is a stock resource a) Farm Buildings b) Machinery c) Concentrate Feed d) Land

Answer 48

c) Concentrate Feed

Question 49

14) Your are given the following information: a) Cash received for milking €50,000 b) Opening debtors 31 March 2011€5000 c) Closing debtors 31 March 2012 €8000 i) What is the value for milk revenue to be recorded in the farmers profit and loss account for the year ending 31 march 2012? (1) 50,000 (2) 53,000 (3) 47,000 (4) 58,000xc

Answer 49

(2) 53,000

Question 50

15) A farmer invested ina new building costing €20,000 in 2009. It is to be fully depreciated over 10 years using the straight line method. What is the written down value at the yea end 2011? a) €2,000 b) €14,000 c) €6,000 d) Some other figure

Answer 50

b) €14,000

Question 51

1) The cost benefit principle requires that: a) The extra benefit from taking an action exceed the extra cost incurred b) The farmer ensures that total farm revenue exceeds total farm costs c) The farmer benefits from shopping around to lower the cost of inputs d) The price the farmer receives should exceed the production costs