Multiple Choice Questions with Answers c) Current ratio
d) Working capital cycle
1. Which of the following best describes the purpose of a Statement
of Financial Position? 10. If a company has high current assets but also very high current
a) To show the profitability of a business liabilities, this indicates:
b) To record all cash inflows and outflows a) Weak liquidity
c) To calculate working capital trends b) Strong gearing
d) To show assets, liabilities, and equity at a specific point in time c) High retained earnings
d) Strong liquidity
2. Non-current assets are best defined as:
a) Assets that can be sold within three months 11. Trade receivables are classified under:
b) Long-term assets used in the business for more than one year a) Non-current assets
c) Cash and receivables b) Non-current liabilities
d) Assets that include trade payables c) Current assets
d) Current liabilities
3. Which of the following is an example of an intangible asset?
a) Inventory 12. Depreciation most directly reduces the value of:
b) Equipment a) Cash
c) Vehicles b) Current liabilities
d) Copyrights c) Non-current assets
d) Reserves
4. Which statement about liabilities is correct?
a) Current liabilities are debts due within one year 13. Which item would be considered a current liability?
b) Trade payables are classified as non-current liabilities a) 10-year bank loan
c) Debentures are classified as current liabilities b) Retained earnings
d) Non-current liabilities are long-term debts c) Trade payables
d) Patents
5. Working capital is calculated as:
a) Non-current Assets – Non-current Liabilities 14. What is the main difference between equity and liabilities?
b) Share Capital + Reserves a) Equity must be repaid, liabilities do not
c) Current Assets – Current Liabilities b) Liabilities represent debt obligations, equity represents
d) Total Assets – Total Liabilities ownership
c) Equity is always larger than liabilities
6. Which of the following items would most likely be included in
d) Liabilities are permanent sources of funds
shareholders’ equity?
a) Bank overdraft 15. The primary use of the statement of financial position in
b) Retained earnings assessing debt versus equity is to:
c) Trade receivables a) Determine retained earnings
d) Loans payable b) Forecast dividend payments
c) Evaluate whether borrowing levels are safe
7. Shareholders’ equity can also be expressed as:
d) Calculate depreciation expenses
a) Non-current Assets – Current Assets
b) Current Assets – Current Liabilities 16. A bank overdraft would appear under which section of the
c) Total Assets – Total Liabilities statement of financial position?
d) Capital Employed – Non-current Liabilities a) Non-current liabilities
b) Non-current assets
8. Which of the following correctly defines capital employed?
c) Shareholders’ equity
a) Shareholders’ equity + Non-current liabilities
d) Current liabilities
b) Total assets – current liabilities
c) Current assets + current liabilities 17. Which of the following would not be found under non-current
d) Share capital – reserves liabilities?
a) Debentures
9. Which of the following best measures a business’s liquidity
b) Long-term loans
position?
c) Trade payables
a) Profit margin
d) Mortgage loans
b) Return on equity
18. If a company has insufficient working capital, it may need to:
a) Sell excess inventory
b) Reduce non-current assets
c) Increase reserves
d) Increase retained earnings
19. Which of the following best explains why management analyses
the statement of financial position?
a) To calculate gross profit
b) To forecast future interest rates
c) To monitor tax obligations
d) To plan strategies such as selling off assets or reducing debt
20. Equity represents:
a) The business’s annual profit before tax
b) Owners’ claim on the business after liabilities are paid
c) Total borrowings of the business
d) The business’s short-term cash obligations