NECO Financial Account Past Questions And Answers (Objective and Theory)
Section A: Financial Account Questions
Question: What does the term “working capital” represent in financial accounting?
A) Current assets – Current liabilities
B) Total assets – Total liabilities
C) Net income – Dividends
D) Long-term assets – Long-term liabilities
Answer: A) Current assets – Current liabilities
Question: What is the purpose of the financial leverage ratio?
A) Assess a company’s ability to cover short-term liabilities
B) Measure the proportion of debt in a company’s capital structure
C) Evaluate the efficiency of cash flow operations
D) Determine the return on investment
Answer: B) Measure the proportion of debt in a company’s capital structure
Question: How does the FIFO (First In, First Out) method differ from the LIFO (Last In, First Out) method in inventory valuation?
A) FIFO assumes the oldest inventory is sold first; LIFO assumes the newest inventory is sold first
B) FIFO assumes the newest inventory is sold first; LIFO assumes the oldest inventory is sold first
C) Both methods result in the same cost of goods sold
D) FIFO is used only for tangible assets
Answer: A) FIFO assumes the oldest inventory is sold first; LIFO assumes the newest inventory is sold first
Question: What is the purpose of the debt service coverage ratio?
A) Evaluate a company’s liquidity
B) Assess the ability to cover interest and principal payments
C) Measure profitability
D) Analyze long-term solvency
Answer: B) Assess the ability to cover interest and principal payments
Question: How does the straight-line method of depreciation work?
A) Allocates an equal amount of depreciation expense each period
B) Accelerates depreciation expense in the early years of an asset’s life
C) Calculates depreciation based on the asset’s remaining useful life
D) Ignores depreciation for financial reporting purposes
Answer: A) Allocates an equal amount of depreciation expense each period.
Section B: Theory Questions
Question: Explain the concept of materiality in financial accounting.
Answer: Materiality refers to the significance or importance of financial information. Information is considered material if its omission or misstatement could influence the decisions of financial statement users.
Question: Define the term “amortization” and provide an example.
Answer: Amortization is the systematic allocation of the cost of intangible assets over their useful life. For example, a company might amortize the cost of a patent over a period of 10 years.
Question: Describe the purpose of the statement of comprehensive income.
Answer: The statement of comprehensive income provides a broader view of a company’s financial performance by including not only net income but also other comprehensive income items, such as gains and losses on certain investments.
