Tag: Management Accounting

Jonny and Paul is a small firm providing advice on all aspects of personal finance.

Their industry is heavily regulated so, being a small firm, the costs of regulation can be a very heavy burden.

A newspaper article predicts that a further area of the firm’s current business, private medical insurance, may be subjected to brand new regulatory requirements from next year.

This possibility is an example of?

Select ONE answer:

1. Level of exposure and probability of occurrence
2. Potential loss and probability of occurrence
3. Potential loss and level of volatility
4. Level of exposure and level of volatility

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == > This is clearly a regulatory (or legal) risk, which is a form of event risk.
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Lucy is a risk manager working for Alex Ltd.

At the present time Lucy is investigating the potential gross risk arising from a recent decision to incorporate lower quality materials into the production process for one of the company’s key products, the Staffordshire.

In assessing potential gross risk, Lucy needs to take account of one of the following?

Select ONE answer:

1. Level of exposure and probability of occurrence
2. Potential loss and probability of occurrence
3. Potential loss and level of volatility
4. Level of exposure and level of volatility

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Notcorrect
2. Correct == > Gross risk is a function of the loss or impact and its probability, before any control measures are implemented.
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

The following statements have been made about risk attitudes.

Statement 1 – A risk-seeking attitude means that an investment should not be undertaken if there
is an alternative investment offering a higher risk

Statement 2 – A risk neutral attitude means an investment should not be undertaken if there is an
alternative investment offering a lower return

Are the statements true or false?

Select ONE answer:

1. Statement 1 = True / Statement 2 = False
2. Statement 1 = False / Statement 2 = True
3. Statement 1 = True / Statement 2 = True
4. Statement 1 = False / Statement 2 = False

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct == > If there are two investments offering different risks, a risk-seeking investor will always prefer the one with the higher risk. If there are two investments offering different returns, a risk neutral investor will always prefer the one with the higher return, not a lower return, regardless of the risk.
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Alex Ltd is a textiles company that developed a new product for use in the sporting market.

Tests on the product proved successful although in extreme conditions the product was shown to be very perishable and dissolved into dust.

After much deliberation, Alex Ltd decided not to launch the product.

In response to the risks highlighted in the product tests, this decision is an example of managing risk through?

Select ONE answer:

1. Risk avoidance
2. Risk reduction
3. Risk transfer
4. Risk acceptance

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct == > Risk reduction (2) would imply taking action to prevent any chance of the product perishing,(4) would imply doing nothing and proceeding to launch the product; and risk transfer (3) might imply taking out liability insurance or selling the product since there is no liability in the event of a perishable event. By not going ahead the company is simply avoiding the risk (1).
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

The following statements have been made in relation to risk and uncertainty:

Statement 1 – Risk is the variation in an outcome

Statement 2 – Uncertainty denotes the inability to predict an outcome

Are the statements true or false?

Select ONE answer:

1. Statement 1 = True / Statement 2 = False
2. Statement 1 = False / Statement 2 = True
3. Statement 1 = True / Statement 2 = True
4. Statement 1 = False / Statement 2 = False

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == > Risk is the variation in an outcome while uncertainty denotes the inability to predict an outcome (due to a lack of information).
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.