CIMA CIMAPRA19-P03-1 Exam Practice Test Instant Access

Question 1

Which of the following statements are true of residual risk?

AResidual risk has to be accepted.

BResidual risk is the risk that remains after risk mitigation has taken place.

CIf residual risk is too great then the company should not expose itself to the risk situation.

DResidual risk may be accepted if management feels the companycan bear the risk.

EResidual risk should never be accepted.

Answer : B, C, D

Question 2

H manufactures and sellshealthy dietary supplements. The companyrecruits individuals as part-timeagents to sellitsproductstofriends and colleagues. These agents are required to buy H's products and to resell them at asmall mark-up.

For a fee, H will provideagents withtrainingin persuasive selling techniques. Agents who pass exams at the conclusion of this training can become distributors. Distributors buy bulk quantities of H's products at a discount and can recruit their own sales agents. Those agents can also take training and can recruit agents of their own.

At what stage does H stop being a legitimate business and become apyramidsellingfraud?

AWhen it asks its agents to buy product and marketing material up front.

BWhenit offers returns on its agents' investments that seem remarkable.

CWhen it offers its agents more reward for recruiting other agents than for selling its product.

DWhen its training programmes promise to unlock the secret of selling its product.

Answer : C

Question 3

The management of U isreviewing internal controls throughout the company. Ithasnoted the following:-

1. In the trade receivables section, journal adjustments are made by the clerks, without any reference to their supervisor. Journal adjustments may relate to sales returns, discounts allowed, or transfers between accounts.

2. In the purchasing department, the purchasing manager selects and approves all suppliers, astheyarethe only person with sufficient experience to do so. They usea very limited number of suppliers becausethey can rely on these suppliers to provide goods of the quality required at a competitive price. They donot keep any documents in relation to negotiations with other potential suppliers or other quotes obtained.

In relation to the above, which of the following statements are valid?

AThe fact that the purchasing manager uses a very small number of suppliers is, in itself, a sign of poor internal controls.

BIt is acceptable for clerks in the trade receivables section to make journal adjustments without authorisation provided the amounts involved are not material to U's financial statements.

CIt is acceptable for clerks in the trade receivable section to make journal adjustments without authorisation, provided they have no access to cash receipts.

DThe fact that the purchasing manager does not keep documentation relating to negotiations with suppliers, or potential suppliers,is evidence that they are involved in fraudulent activity.

EClerks making journal adjustments without reference to their supervisor is evidence of inadequate separation of duties.

FThe way the role of purchasing manager is carried out in U increases the chance that the company will fall victim to fraudulent activity.

Answer : E, F

Question 4

Kis a manufacturing company. It has sourced new equipment from the US to equip a new production facility.

It has to make a payment of USD1,000,000 in3 months' time.

K's production manager needs to know whether it is cheaper to use a forward contract or a money market hedge.

Current spot and forward exchange rates are as follows:

Current mid-point money market rates (annual) are as follows:

Ignoring taxation, which of the following statements is correct?

AThe money market hedge saves GBP15,196

BThe forward contract saves GBP2,629

CThe money market hedge saves GBP32,078

DThe forward contract saves GBP1,901

Answer : A

Question 5

WhichTWOof the following are benefits of carrying out a post-completion audit of capital projects?

AA post-completion audit can help find out who was to blame for a project exceeding the budget.

BA post-completion audit can help management understand what went wrong with a project in order to try and prevent the same problem occurring in the future.

CA post-completion audit can help find out where a project went wrong so it can be fixed immediately.

DA post-completion audit can investigate variances from the budget on completed projects.

Answer : B, D

Question 6

Company W produces mobile phone components and has recently tendered for a substantial contract. The results of the tendering process will not become available until three months from now. If the company is successful it will require 2,000 units of a commodity which is currently traded in an open commodity market for $740 per unit. However, there has been speculation that this commodity could increase substantially in price over the next three months and so the company is considering purchasing the commodity now and storing it for three months.

The funds to buy the commodity would be borrowed at an annual interest rate of 7% and the storage cost of the product would be $5.40 per unit per month. The storage costs would be paid at the end of the three month storage period.

Which of the following represents the gain or loss (to the nearest thousand dollars) that will accrue to Company W assuming that the price of the commodity rises to $800 in three months' time?

A$62,000 gain

B$95,000 gain

C$88,000 gain

D$16,000 loss

Answer : A

Question 7

You are in process of compiling ariskregister for P, a company whichmaintains railway tracks.This helps prevent accidents and ensures the trains are not disrupted due to problems with the track.

Which of the following statements are valid?

AA properly compiled risk register will identify all the risks to which P could possibly be exposed.

BA risk register should profile each risk in terms of probability and consequence.

CA risk register should concern itself with only the direct consequences of each risk such as injury to passengers and ignore indirect risks, such as re-routing trains due to an accident.

DThe risk register for P should be updated frequently: for example, every two weeks.

EThe risk register should specify the individual, or group of individuals, responsible for the management of each risk.

Answer : B, E

CIMAPRA19-P03-1 P3 Risk Management (Online) Exam Practice Test