Chapter 19

Which of the following is an element of working capital in a limited company?
1. Share capital
2. Earnings retained for use in the business
3. Intangible assets
4. Trade payables
A business has a high level of intangible assets relative to its other non-current assets. Which type of activity is the business most likely to be engaged in?
1. Pharmaceuticals
2. Supermarket retailing
3. Food manufacturing
4. Construction
Which of the following is most likely to be a feature of the statement of financial position of a supermarket retailing business?
1. High level of trade receivables
2. High level of intangible assets
3. High level of trade payables
4. Low level of inventory
Syms Products Limited uses the EOQ to determine the optimal level of inventory orders. The following information has been established in respect of inventory line XX44:

A Cost per order: £5
B Time required to fulfil orders on average: 6 days
C Holding cost per unit: £3
D Demand for the item in the period: 800 units

Which of the above items of information are required in order to calculate the Economic Order Quantity (EOQ)?
1. ABC
2. ACD
3. BCD
4. ABD
The management accountant of a company has worked out that the demand for a particular item of inventory is 550 units in the accounting period. The holding cost per unit is £3, and the order cost is £8 per order. What is the EOQ (to the nearest whole unit)?
1. 38 units
2. 54 units
3. 20 units
4. 27 units
Last year Reynard Binks Limited incurred total costs of £300 in placing 10 orders for a product. This year the management accountant would like to use the EOQ model to see if the product should be ordered more, or less, frequently. Holding costs for the product are £2.60 per unit, and the demand for the product for the period is estimated at 8600 units. What is the Economic Order Quantity (to the nearest whole unit), assuming that the cost of placing an order has increased by 10% since the previous year?
1. 445 units
2. 315 units
3. 467 units
4. 330 units
Which of the following is a significant drawback of the Economic Order Quantity model?
1. Using it increases the length of the working capital cycle
2. It results in an inventory level that is unrealistically low
3. It depletes cash more quickly
4. It may be unrealistic in its assumption that holding costs are constant
Which of the following statements is correct?

The use of factoring:
1. Is helpful for businesses that make cash sales
2. May improve working capital management by speeding up the collection of cash
3. Is often not permitted by HMRC
4. May result in increased levels of inventory
The chief accountant of Amery Styles plc has calculated the following ratios for the company's recent financial year:

Average inventory turnover period: 42.6 days
Average trade payables turnover period: 72.6 days
Average trade receivables turnover period: 58.7 days

What is the length of the company's operating cycle?
1. 28.7 days
2. 173.9 days
3. 56.5 days
4. 88.7 days
The operating cycle for Smithson Cortege Limited for the year ended 31 December 20X7 was 38.9 days. In the previous financial year it had been 37.8 days.

Which of the following statements are correct?

A The operating cycle has worsened slightly in the 20X7 financial year compared to the previous financial year.
B A longer operating cycle indicates that the company has been more successful in collecting its trade receivables early.
1. Both of them
2. A only
3. B only
4. Neither of them

Average inventory turnover period:	42.6 days
Average trade payables turnover period:	72.6 days
Average trade receivables turnover period:	58.7 days