Professional Questions Bank (PQB) - 2016 for GE04: Fundamentals of Business Economics About PQB: It contains previous years CMA exam questions. It is prepared based on ICMAB new syllabus and includes old syllabus exam questions for the chapters similar to new syllabus. Why PQB? A CMA student should collect the PQB because — * it provides an idea about exam questions pattern * it provides chapter and year wise questions + It increases possibility to get common in exam * its questions are solved in easy way by following IAS & BAS SRT TAPP CAS TA CHATS CAG AF fet FZ sabolilacademy First Edition: June 2016 Prepared By - Sabolil Academy D for tomorrow's Professionals Mobile: (+88) 01711137039, (+88) 01611137039, (+88) 01511137039 Website: www.sabolilacademy.org, E-mail: [email protected] Gi sabolilacademy sabolilacademy [@* +sabolilacade Sabolil Academy Professional Questions Bank Page 0Table of Contents Chapter Topic Page No. A__| The macroeconomic context of organisations 02 B__ The goals and decisions of organisations 21 C__| The market system and the competitive process 38 D__| The financial system 68 RIN FIA FA Cll PRA OSWSSwJowd, osEssswqows Sabolil Academy Professional Questions Bank Page 1Chapter A: The macroeconomic context of organisations — 25% coverage on exam questions | \|. This chapter includes 03 to 20 pages Sabolil Academy Professional Questions Bank Page 2Theoretical Part Sabolil Academy Professional Questions Bank Page 3Q. What are the components of National Income? ICMA- DEC’15 Ans, ‘The components of National Income: 1. Gross Domestic Product (GDP) 2. GDP at factor cost 3. Net Domestic Product 4. Nominal and real GDP 5. Gross National Product (GNP) 6. GNP at market price 7. GNP at factor cost 8. Net National Product (NNP) 9. NNP at market price 10. NNP at factor cost Q. What are the main government macroeconomic policy goals in a country? ICMA- DEC’15 Ans. The three primary macroeconomic policy goals are economic growth, low unemployment, and low inflation, Economic growth is an increase in a country’s standard of living. Unemployment is the condition of wanting but not having a paid job. Inflation is a general increase in the price level which is the general level of prices for goods and services in an economy. A price index is used to measure the price level. All three goals are important because of their influence on the standard of living, Economic growth is the primary determinant of the standard of living, however, and is thus the ultimate macroeconomic goal. Fundamentals of Management Accounting *IBTS BIRT HAT 01711137039 Sabolil Academy Professional Questions Bank Page 4Q. What are the sources of Economic Growth of a Country? ICMA- DEC’15 Ans, Different social, economic, political, cultural, ethical and-moral factors ultimately determine the socio-economic growth-path of a country. Economic development is, therefore, a multi-dimensional process involving a multitude of economic and non-economic factors. Economic growth can be traced to the contributions made by the 5 Ms, namely: Men, Material, Machine, Method and Money. As resources, these 5 Ms can be expressed as human resources, natural resources, productive facilities, technological inputs and financial resource A South Asian country belonging to the developing third world, the backward economy of a country can be easily traced to its backward state in all the key resources, viz. natural, human, technological, productive and capital. All these inter-related variables constantly interact with each other leading to a vicious cycle of backwardness and underdevelopment. Q. Explain the impacts of globalization on an economy like Bangladesh. ICMA- DEC’15 Ans. Globalization has become a buzzword in the new era of international relations Basically it is a process of expanding trade and commerce all over the world by creating a fronticr-less market, In fact, globalization is currently understood mainly in terms of mutual relationship of nations and region of economic domain, in particular, trade, financial flows and traditional corporations. The Impact of globalization on Bangladesh economy cannot be denied. Like the developing countries of the world our country is getting benefit out of border- less market. Our GDP has increased. Garment industries are considered the foreign exchange earner. In terms of investment, employment and exports, the functioning EPZs(Export Processing Zones) have been greatly successful Before globalization, Bangladesh was one in eight of the poorest countries in the world, However, when globalization emerged in Bangladesh, through apparel manufacturing and exporting industries, the economy began to grow at a rapid rate. Overall the result has been a significant decrease in poverty in Bangladesh over the past decade. Sabolil Academy Professional Questions Bank Page 5Q. What are the probable impacts of currency devaluation on external competitiveness of a country like Bangladesh? ICMA- DEC’15 Ans, A devaluation means there is a fall in the value of a currency. The probable impacts of currency devaluation on external competitiveness of a country like Bangladesh 1. A devaluation of the exchange rate will make exports more competitive and appear cheaper to foreigners. This will inerease demand for exports 2. A devaluation means imports, such as petrol, food and raw materials will become more expensive. This will reduce demand for imports. 3. A devaluation could cause higher economie growth. Higher exports and lower imports should increase aggregate demand (assuming demand is relatively elastic). 4. Higher exports and lower imports will reduce the current account deficit. 5. Inflation is likely to occur following a devaluation. Q. Describe how Business Economics helps in managerial decision making. Or, Discuss the role of Managerial Economics in the context of Bangladesh, Or, Illustrate key ways in which Managerial Economics help in Managerial Decision-making. ICMA- AUG’ 14 Ans. Managerial economics assists decision makers (managers) in efficient allocation of scare resources, planning strategy on pricing, operations, risk, investment, production and executing effective tactics. Managerial economics use the tools and techniques of economic analysis for solving business problems and establishing the link between traditional economics and managerial science. Sabolil Academy Professional Questions Bank Page 6Cost and Management Accountant needs managerial economics not only to fulfill the traditional role of recording, classifying and analyzing business transactions but also for managerial control. It helps management to reduce the risk of making faulty decision Managerial economics help the management in the proper understanding of economic problems and in the formation of economic policies. It helps not only in formulating appropriate economic policies but also in evaluating their effect ‘A Cost and Management Accountant uses the techniques of managerial economics for demand and supply analysis, market and product research. The world is now becoming a global village with the continued improvement in the information. Without a study of managerial economics a management accounting professional cannot be fully informed about international trade or the economic impact on the world Q. Why economic profit is not always equal to accounting profit? Or, What are the reasons of variation of profit in between the firms? ICMA- DEC’13 Ans. In general words, profit is the excess of revenue over costs. An accountant calculates profit by deducting only explicit or actual costs from the revenue. But an economist does one step more to arrive at profits, he deduct from revenue not only the explicit cost but also the implicit costs, like entrepreneur’s salary, rental income on self-owned land employed in the business, income on self= owned capital investment, ete So, the economic profit is not equal to accounting profit. This is the main reason for variation of economic profit from firm to firm. For example, Mr. Sumon, recently completed his graduation on computer science from University of Development Alternative. He left a job offer of Tk.3,00,000 per year and started a computer business. He borrows Tk.5,00,000 to purchase equipment. Total sales during his first year were Tk.8,00,000. Total raw material costs were Tk.1,00,000, labor costs were Tk.2,00,000 and interests on loan were Tk.50,000 per year @10%. Sabolil Academy Professional Questions Bank Page 7Calculation of accounting profit: Amount (Tk) Total sales 8,00.000 Less: Expenses Raw material costs 1,00,000 Labor costs 2,00,000 Interest on loan 50,000 Total expenses 3,50,000 Accounting profit 4,50,000 Calculation of economic profit: Economic profit = Accounting profit — Implicit costs ,50,000 — 3,00,000 50,000 Q. Define managerial economies Or, Define business economics ICMA- APR’13 Ans. Managerial economics is a sub-discipline of economics, it involves the application of economic theory related to business activities and organizations Managerial economics is that part of economic theory which focuses on business enterprises and measures the relationship of firms with labor, capital and product markets UTA UA? Friday Toa ca wePet- 01711137039 Sabolil Academy Professional Questions Bank Page 8Q. Dis uish between Business Profit and Economic Profit. Or, Distinguish between economic profit and accounting profit ICMA- APR’12 Ans. Distinction between economic profit and accounting profit Business profit (or, Accounting profit) Economie profit 1. Business profit is the difference between total revenue and total cost excluding opportunity cost 2. It is obtained by a firm after all the economic costs are meet 3. When considering business profit, it is defined as the revenue deducted from the explicit costs 4. When calculating business profit, several things like leased assets, non- cash adjustments, allowances are considered 5, Business profit = Total income — Total expenses 1. Economic profit is the difference between total revenue and total cost including opportunity cost 2. It is obtained when revenue exceeds opportunity cost 3. When considering economic profit, it is defined as the revenue deducted from explicit and implicit costs 4, When calculating economic profit, several things like opportunity costs, tax rates and interest rates on cast flow are considered 5. Economic profit = Total income — Total expenses — Opportunity costs Q. State the essence of profit for a firm. Or, What is the significance of economic profit of a firm? Or, Give explanation for emergence of super profit in firms. ICMA- DEC’11 Ans. Sabolil Academy Professional Questions Bank Page 9Profit is a measure of economic efficiency. It helps to judge the economic performance. It ensures maximum social welfare. Ina firm, the economic profits play an important role. The existence of profit determines the type and quantity of goods and services that are need to be produced and sold. It also determines the demand for various factors of production- labor, capital and natural resources ‘The importance of profit for a firm is that the owners know exactly what amount they can spend to make the business prosper and make sure that they can develop their goods and services to attract more customers Profit helps a firm to invest wisely and to make sound decisions. It helps the firm to perform better and to run the business more effectively and efficiently. Profit also necessary for the survival of the business and for its growth and expansion. Q. Define economics. ICMA- APR’I1 RCS PT ee? PPT TRI Ans. 01711137039 Economics is the science that deals with the production, allocation and use of goods and services. Economies is the social science that studies the management of scare resources such as land, labor and capital to produce, distribute tangible goods or to provide services in order to satisfy unlimited human wants Q. Explai jitation of profit maximization model. State the way and means to overcome this limitation. ICMA- APR’09 Ans. According to the profit maximization model, those activities should be undertaken which increases profit and those activities should be avoided which decreases profit. The profit maximization model implies that the investment and financing decision of a firm should be profit maximization oriented. But this model suffers from several limitations because the investment and financing decision is not always done for the purpose of profit maximization, such as non- profit organization. Its other limitations are: Sabolil Academy Professional Questions Bank Page 10Ambiguity: One practical limitation of this model is in financing decision making because the term profit is an ambiguous concept. It is interpreted by different people in different ways. Timing of benefit: The value of a unit of money is different in different time periods. This is referred to as time value of money. The profit maximization model does not consider this factor. It considers all returns received in different time periods as equally valuable. Applical The profit maximization model can not be applied in every sphere because there are some non-profit organization works for wealth maximization ‘The way and means to overcome this limitation - The term profit should be specifically defined - The factor time value of money should be considered - It should consider wealth maximization belong with profit maximization - It should states the fields in which it is applicable Q. State non-profit objectives of a firm and briefly outline how they help in achieving the profit maximization objective. ICMA- APR’09 Ans. Although, the main objective of a firm is to maximize profit, there are several non-profit objectives that some organization follows. These are i) Maximization of quantity of output ii) Maximization of quality of output iii) Maximization of utility (satisfaction) of the contributors iv) Maximization of cash flows v) Maximization of value of the firm These non-profit objectives help the firm to attain its profit maximization objectives by efficiently managing its resources. When the quantity of output is maximized, it increases the capacity to supply more goods or services. When the firm supplies higher quality of goods or services, it attracts more customers and maximizes the profit Sabolil Academy Professional Questions Bank Page 11TA IRE aa sNfifor SCA WNT TAA GA BPN AFAR BST FHA oLSAs$poiows, osessswqows Mathematical Part Code: PQB 023 Sabolil Academy Professional Questions Bank Page 12CMA Exam- Aug’15 Q-1. Calculate GDP and national Income of Bangladesh from the following Figures Items Crores Taka Personal Consumption of goods and Services 9,00,000 Gross Private Investment 2,00,000 Government Purchase of goods and Services 70,000 Depreciation Charges 20,000 Exports 3,00,000 Imports 4,00,000 Dividend Income from abroad 4,000 Income of Migrant Labour of Bangladesh 1,60,000 Value of Shares purchased during the year 2,00,000 Subsidies 1,000 Corporate Income Tax 50,000 Personal Income Tax 30,000 Value of Second hand computer purchased 30,000 Purchase of land during the year 2,00,000 Gains from sale of old cars during the year 20,000 CMA Exam- Apr’15 Q-2. Find out the accounting profit and economic profit from the following information obtained from Rajin Associates for the Financial year 2013-14. Mr. Rajin is earning Tk. 100,000.00 a year as sales representative of a manufacturing company. He decides to open a store to sell the product as a retail shop. He had investment of Tk.1,20,000/- in savings from where he used to get Tk.12,000/- per year. He is occupying two rooms for his store which he used to rent out at Tk.20,000/- per year. He hired an office assistant at an yearly salary of Tk.60,000/-, His total sales during the year stood at Tk.3,50,000/- and total material cost was Tk. 1,50,000/-. Utilities he paid during the year was 35,000/~ Sabolil Academy Professional Questions Bank Page 13CMA Exam- Apr’15 Q-3. Calculate GDP, GNP and NI from the following information: Particulars Tk. in crores Gross Private Investment 10,000 Govt. purchase of goods and services 4,000 Personal consumption of goods & services 20,000 Depreciation Charges 500 Exports 6,500 Imports 8.500 Value of shares purchased during the year 500 Value of 2™ hand computer purchased 500 Purchase of land during the year 200 Purchase of old car during the year 500 CMA Exam- Dee’14 Q-4. From the following data calculate GDP, GNP and National Income. (Amount in Crore BDT) Gross Private Investment 1000 Personal Consumption expenditures 2000 Depreciation Charges 50 Exports 650 Imports 850 Value of Shares purchased during the year 50 Value of 2" hand goods purchased 50 Purchase of land during the year 20 Purchase of old cars during the year 50 Sabolil Academy Professional Questions Bank Page 14CMA Exam- Aug’14 Q-5. Calculate GDP, NNP. NI and DPI from the following: Particulars of Items Tk, In Crores Consumption expenditure 10,000 Value of common stock purchase 4,000 Gross domestic investment 3,000 Sales tax 500 Govt. purchase of goods and services 2,000 Corporate income tax 2,000 Personal income tax 1,000 Net of exports (Export minus imports) 1,000 Depreciation 750 Business transfer payments 7,000 CMA Exam- Apr’ 14 Q-6. Calculate GNP, NNP, NI and DPI from the following infor Ltd. mation of XYZ Particulars Tk. In Lacs Consumption expenditure 1,000 Value of common stock purchase 400 Gross domestic investment 300 Sales tax 50 Govt. purchase of goods and services 200 Corporate income tax 200 Personal income tax 100 Net of exports (Export minus imports) 100 Depreciation 5 Business transfer payments 100 Sabolil Academy Professional Questions Bank Page 15CMA Exam- Dee’13 Q-7. Calculate GNP, NNP. NI and DPI from the following information of XYZ Ltd. Particulars Tk. In Lacs Consumption expenditure 1,000 Value of common stock purchase, 400 Gross domestic investment 300. Sales tax 50 Govt. purchase of goods and services 200 Corporate income tax 200 Personal income tax 100 Net of exports (Export minus imports) 100 Depreciation 75 Business transfer payments 100 CMA Exam- Apr’13 Q-8. Calculate GDP and national Income from the following data: Tk. In crores’ Net domestic product 12,433, Depreciation 1,832 Net foreign factor income 133 Statistical discrepancy 136 Indirect business taxes 983 Corporate profits 1.477 Interest and miscellaneous payments 778 Social security taxes 996 ‘Transfer payments 1,869 Capital income 2,038 Personal taxes 1,461 Sabolil Academy Professional Questions Bank Page 16CMA Exam- Aug’ 11 Q-9. Miss Suporna, a CMA professional left her job of Taka 60,000 a month and started consultancy services under the name Suporna Cost and Management Consultancy Limited with a capital of Taka 5,00,000. She took bank loan of Taka 3,00,000 @interest rate of 15% p.a. She used a flat of her father’s business house for which she need not to pay any rent, which could be rented out @Taka 10,000 per month. She earned Taka 20,00,000 in her consultancy business during 2010-11. During the year material costs and services charges were Taka 80,000 and salaries of employees were Taka 1,20,000 in her business. Depreciation of equipment was estimated at Taka 10,000. Calculate business profit and economic profit of Suporna Cost and Management Consultancy Limited during 2010-11 CMA Exam- Aug’I1 Q-10. Calculate GDP and National Income of Bangladesh during 2009-2010 from the following information: Dollars in Crores Gross Private Investment 3500 Government Purchase of goods and Services 500 Personal Consumption of goods and Services 4500 Depreciation Charges 150 Exports 1850 Imports 2250 Gains from sale of Shares during the year 150 Value of Second hand computer purchased in the country 50 Purchase of land during the year 120 Gains from sale of old cars during the year 150 CMA Exam- Dee’10 Q-11. Mr. Robert, a CMA professional, left his job of Tk.60,000 per month and started a consultancy business under the name Robert Cost and Management Consultancy Limited with a capital of Tk.6,00,000 and a bank loan of Tk.2,00,000, interest rate being 12% p.a. He earned Tk.15,00,000 during the year 2009-2010. He used a room of his father’s business for which he need not spend any rent, which could be rented out @Tk.10,000 per month. During the year, material cost and service charges were Tk.70,000 and salaries of employees were Tk.90,000. Depreciation of Equipment is estimated at Tk.5,000. Calculate accounting profit and economic profit of Robert Cost and Management Consultancy Limited for the year 2009-2010. Sabolil Academy Professional Questions Bank Page 17CMA Exam- Dec’10 Q-12. Calculate GDP and National Income of Bangladesh during 2009-2010 from the following information Taka in Crores Gross Private Investment 2500 Government Purchase of goods and Services 500 Personal Consumption of goods and Services 3500 Depreciation Charges 150 Exports 1650 Imports 1850 Value of Shares purchased during the year 150 Value of Second hand computer purchased in the country 50 Purchase of land during the year 120 Gains from sale of old cars during the year 150 CMA Exam- Aug’10 Q-13. Calculate National Income from the following data: Tk. in crores Compensation of employees 4222.7 Rents 122.2 Interest 403.6 Profit (i Proprietor’s income 4783 (ii) Corporate 586.6 Indirect business Taxes 679.0 Capital consumption allowances 754.2 Payments of factor income to rest of the 215.3 world Receipts of factor income to rest of the 208.3 world Sabolil Academy Professional Questions Bank Page 18CMA Exam- Apr’10 Q-14. From the following data calculate National Income: Taka in crores Compensation of employees - 1866.3 Business interest payment - 264.3 Rental income of persons - 34.1 Corporate Profits - 164.8 Proprietor’s income - 120.3 Corporate Dividends - 66.4 Social Security contribution - 253.0 Personal taxes - 402.1 Interest paid by consumer - 64.4 Interest paid by Govt. - 105.1 Govt. and business transfers - 374.5 Personal consumption expenditure - 1991.9 CMA Exam- Dec’09 Q-15. Mr. Sulaiman, a CMA professional, left his job of Tk.50,000.00 per month and started a consultancy business under the name Sulaiman Cost and Management Consultancy Limited with a capital of Tk.5,00,000.00 and a bank loan of Tk.3,00,000.00, interest rate being 14% p.a. He earned Tk.15,00,000.00 during the year 2008-2009. He used a room of his father’s business for which he need not spend any rent, which could be rented out @Tk.10,000 per month During the year, material cost and service charges were Tk.80,000.00 and salaries of employees were Tk.90,000.00. Depreciation of Equipment is estimated at Tk.6,000.00. Calculate accounting profit and economic profit of Sulaiman Cost and Management Consultancy Limited for the year 2008-2009. Questions Bank «q ATT TA PU CR TAAL ‘Pret- 01711137039 Sabolil Academy Professional Questions Bank Page 19CMA Exam- Dec’09 Q-16. Calculate GDP and National Income of Bangladesh during 2008-2009 from the following information: Dollars in Crores Gross Private Investment 2500 Government Purchase of goods and Services 500 Personal Consumption of goods and Services 3500 Depreciation Charges 150 Exports 1650 Imports 1850 Value of Shares purchased during the year 150 Value of Second hand computer purchased in the country 50 Purchase of land during the year 120 Gains from sale of old cars during the year 150 CMA Exam- Apr’09 Q-17. Compute GDP and National Income from the following information of Bangladesh during 2007-2008: Items Value in Million BDT Value of goods produced in 2007-2008 48,000 Raw material used 20,000 Electricity and power used 1,000 Depreciation of fixed asset 800 Salaries earned by Bangladeshi people in overseas 6,000 jobs Cost of relief goods distributed by Government 500 Gains from sale of Share 100 Profit from sale of secondhand goods 200 Sale of lands 100 Indirect Tax 100 Subsidies 50 Sabolil Academy Professional Questions Bank Page 20Chapter B: The goals and decisions of organisations — 25% coverage on exam questions | | This chapter includes 22 to 37 pages Sabolil Academy Professional Questions Bank Page 21Theoretical Part Sabolil Academy Professional Questions Bank Page 22Q. What do you understand by the term “Profit Maximization”? ICMA- Dec’ 15 Ans, profit. maximization is the short run or long run process by which a firm determines the price and output level that returns the greatest profit. There are several profit maximization methods used and they are Marginal Cost- Marginal Revenue Method and Total Cost-Total Revenue Method. Profit maximization is a good thing for a company, but can be a bad thing for consumers if the company startsto use cheaper products or decides to raise prices. Q. Distinguish between Law of diminishing Return and Law of Increasing Return. ICMA- AUG’14 Ans. Distinction between Law of diminishing Return and Law of Increasing Return: Law of diminishing Return: ‘The law of diminishing return states that we will get less and less extra output when we add additional quantity of an input by holding other input fixed According to this law, we will get less and less output when we add additional quantity of an input while other input remains constant. For example, If we add more input, such as labor to a fixed area of land. The land gets more crowded, the machinery is overworked and the marginal product of labor decrease. Law of Increasing Return: The law of increasing return states that an addition of additional unit of an input yields disproportionately high return. According to this law, we will get more and more output when we add additional quantity of an input. For example, If a Stallman add a photocopy machine in his stall, he will be able to make copy more and more pages. Sabolil Academy Professional Questions Bank Page 23