These are ACCA F9 (FM) Financial Management MCQs for Part-C of the Syllabus “Working capital management”.

These multiple-choice questions (MCQs) are designed to help ACCA F9 students to better understand the exam format. We aim to instill in students the habit of practicing online for their CBE exams. By doing so, students can reduce exam stress and prepare more effectively.

Please note:

Students should not attempt these MCQs until they have finished the entire chapter.
All questions are compulsory, so please do not skip any.

We hope that these MCQs will be a valuable resource for students preparing for the ACCA F9 (FM) exam.

INFORMATION ABOUT THESE CBE MCQs Test/Quiz

Course:	ACCC – Association of Chartered Certified Accountants
Fundamental Level:	Applied Skills
Subject:	Financial Management
Paper:	F9 – FR
Chapter and Topic	The nature, elements and importance of working capital, Management of inventories, accounts receivable, accounts payable and cash, Determining working capital needs and funding strategies
Syllabus Area:	C – “Working capital management”
Questions Type:	CBE MCQs
Exam Section:	Section A

Syllabus Area

These Multiple Choice Questions (MCQs) cover the Syllabus Area Part C of the Syllabus; “Working capital management” of ACCA F9 (FM) Financial Management Module.

Time

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Types of Questions

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Multiple choice: Choose all those answers which seem correct/ or incorrect to you, as per the requirement of the question. Keep your eye on the wording “(select all those which are correct/ or incorrect)“.
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F9 (FM) - Part C - MCQs - Working capital management

Course: ACCA - Association of Chartered Certified Accountants
Subject: F9 (FM) - Financial Management
Syllabus Area: C - Working capital management
Chapter: 04 Working capital, 05 Managing working capital, 06 Working capital finance
Exam Section: Section A
Questions type: MCQs
Time: No Time Limit

INSTRUCTIONS

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1 / 20

What are the TWO key risks for the borrower associated with short-term working capital finance?

Renewal risk

Rate risk

Inflexibility

Maturity mismatch

2 / 20

Which statement best reflects an aggressive working capital finance policy?

Investors are forced to accept lower rates of return.

More long-term finance is used as it is less risky.

Inventory levels are reduced.

More short-term finance is used because it is cheaper although it is risky.

3 / 20

The treasury department in TB Co has calculated, using the Miller-Orr model, that the lowest cash balance they should have is $1m, and the highest is $10m. If the cash balance goes above $10m they transfer the cash into money market securities.

Which of the followings are TRUE?

When the cash balance falls to $1m they will sell $3m of securities.

If the variance of daily cash flows increases the spread between upper and lower limit will be increased.

When the balance reaches $10m they would buy $6m of securities.

4 / 20

A company needs $150,000 each year for regular payments. Converting the company's short-term investments into cash to meet these regular payments incurs a fixed cost of $400 per transaction. These short-term investments pay interest of 5% per year, while the company earns interest of only 1% per year on cash deposits.

According to the Baumol Model, what is the optimum amount of short-term investments to convert into cash in each transaction? (to the nearest $'000)

5 / 20

JP Co has budgeted that sales will be $300,100 in January 20X2, $501,500 in February, $150,000 in March and $320,500 in April. Half of sales will be credit sales. 80% of receivables are expected to pay in the month after sale, 15% in the second month after sale, while the remaining 5% are expected to be bad debts. Receivables who pay in the month after sale can claim a 4% early settlement discount.

What level of sales receipts should be shown in the cash budget for March 20X2? (to the nearest $)

6 / 20

Which of the following is NOT a drawback of the EOQ model?

Assumes certain or zero lead times

Assumes certainty in demand

Assumes a small number of close suppliers

Ignores hidden costs such as the risk of obsolescence

7 / 20

L Co is considering whether to factor its sales invoices. A factor has offered L Co a non- recourse package at a cost of 5% of sales and an admin fee of $6,000 per year. Bad debts are currently 2% of sales per year and sales are $1.5m per year.

What is the cost of the package of L Co?

$ _________

8 / 20

Which of the following statements is/are correct?

Factoring with recourse provides insurance against bad debts.
The expertise of a factor can increase the efficiency of trade receivables management for a company.

1 only

2 only

Neither 1 nor 2

1 and 2

9 / 20

Which TWO of the following would be most likely to arise from the introduction of a just-in-time inventory ordering system?

Lower ordering costs

Less risk of inventory shortages

Lower inventory holding costs

More frequent deliveries

10 / 20

Which of the following is NOT a potential hidden cost of increasing credit taken from suppliers?

Business disruption

Damage to goodwill

Increased risk of bad debts

Early settlement discounts lost

11 / 20

Which of the following is LEAST likely to be used in the management of foreign accounts receivable?

Invoice discounting

Commercial paper

Bills of exchange

Letters of credit

12 / 20

Which of the following statements concerning working capital management are correct?

Working capital should increase as sales increase.
An increase in the cash operating cycle will decrease profitability.
Overtrading is also known as undercapitalisation.

1, 2 and 3

2 and 3 only

1 and 2 only

1 and 3 only

13 / 20

Wallace Co has annual credit sales of $4,500,000 and on average customers take 60 days to pay, assuming a 360-day year. As a result, Wallace Co has a trade receivables balance of $750,000. The company relies on an overdraft to finance this at an annual interest rate of 10%.

Wallace Co is considering offering an early settlement discount of 1% for payment in 30 days. It expected that 25% of its customers (representing 35% of the annual credit sales figure) will pay in 30 days in order to obtain the discount.

If Wallace Co introduces the proposed discount, what will be the NET impact?

$1,875 saving

$2,625 cost

$1,875 cost

$2,625 saving

14 / 20

TS Co has daily demand for ball bearings of 40 a day for each of the 250 working days (50 weeks) of the The ball bearings are purchased from a local supplier for $2 each. The cost of placing an order is $64 per order, regardless of the size of the order. The inventory holding costs, expressed as a percentage of inventory purchase price, is 25% per year.

What is the economic order quantity (EOQ)?

______ ball bearings

15 / 20

EE Co has calculated the following in relation to its inventories.

Buffer inventory level	50 units
Reorder size	250 items
Fixed order costs	$50 per order
Cost of holding onto one item pa	$1.25 per year
Annual demand	10,000 items
Purchase price	$2 per item

What are the total inventory related costs for a year? (to the nearest whole $)

$ _______

16 / 20

A company has annual credit sales of $27m and related cost of sales of $15m. The company has the following targets for the next year:

Trade receivables days:	50 days
Inventory days:	60 days
Trade payables:	45 days

Assume there are 360 days in the year.

What is the net investment in working capital required for the next year?

$6,375,000

$4,375,000

$8,125,000

$2,875,000

17 / 20

Which TWO of the following statements about overcapitalisation and overtrading are correct?

Overtrading may result in a relatively high accounts payable turnover period

Overcapitalisation is the result of too much short-term capital

Overtrading often arises from a rapid increase in sales revenue

Overcapitalisation results in a relatively low current ratio

18 / 20

WW Co has a current ratio of 2. Receivables are $3m and current liabilities are $2m.

Assume a 365-day year.

What are inventory days if cost of sales is $10m per year and WW Co has a zero cash balance? (to one decimal place)

______ days

19 / 20

Which TWO of the following are correct descriptions of net working capital?

The long term capital invested in net current assets

Current assets – current liabilities

Inventory days + accounts receivable days – accounts payable days

Current assets / current liabilities

20 / 20

A company's typical inventory holding period at any time is:

Raw materials:	15 days
Work in progress:	35 days
Finished goods:	40 days

Annual cost of goods sold as per the financial statements is $100m of which the raw materials purchases account for 50% of the total.

The company has implemented plans to reduce the level of inventory held, the effects of which are expected to be as follows:

Raw material holding time to be reduced by 5 days
Production time to be reduced by 4 days
Finished goods holding time to be reduced by 5 days

Assuming a 365-day year, what will be the reduction in inventory held?

$3.151m

$2.603m

$1.918m

$3.836m

Your score is

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