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CPC Road Haulage Exam study materials
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CPC Road Haulage Exam practice questions

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Question 1Civil and Commercial Law

Under the Convention on the Contract for the International Carriage of Goods by Road (CMR), which document normally serves as prima facie evidence of the conclusion of the contract of carriage and of the conditions of carriage?

  1. The carrier's internal waybill
  2. The CMR consignment note Correct answer.
  3. The delivery and collection note
  4. The bill of lading

Explanation

Article 9 CMR provides that the consignment note is prima facie evidence of the conclusion and conditions of the contract of carriage, provided it has been signed by both parties. It is not a document of title, unlike a bill of lading. The consignment note is the central documentary instrument of the CMR regime.

Question 2Civil and Commercial Law

A haulier collects sealed pallets from a shipper and delivers them to a consignee who signs a clean delivery receipt. Which statement best describes the carrier's position if the consignee later alleges hidden damage?

  1. The carrier is liable only if the consignee proves negligence by the carrier
  2. The carrier is relieved of all liability once a clean receipt is signed
  3. The carrier is presumed liable unless it proves the damage arose from a CMR exception Correct answer.
  4. The carrier is automatically liable because CMR imposes strict liability for all damage

Explanation

Under Article 17 CMR the carrier is liable for loss or damage occurring between taking over and delivery, subject only to the listed exceptions such as inherent vice, fault of the consignee, or force majeure. Liability is therefore presumed and it is for the carrier to prove an exception applies. A clean receipt is strong but not conclusive evidence against later hidden damage claims.

Question 3Civil and Commercial Law

Which limitation of liability applies under CMR where the goods have no special declaration of interest and no gross negligence is established?

  1. A fixed sum of 100,000 SDR per vehicle
  2. A sum per consignment capped at the freight charge
  3. A sum per kilogram of gross weight of the goods lost or damaged Correct answer.
  4. The full invoice value of the goods in all cases

Explanation

Article 23(3) CMR limits compensation to 8.33 units of account (SDR) per kilogram of gross weight of the goods lost or damaged. A higher limit applies only where a special declaration of interest has been made or where the carrier's wilful misconduct is proved. The limit is weight-based, not vehicle-based or invoice-based.

Question 4Civil and Commercial Law

A carrier wishes to rely on the CMR time bar. Within what period must legal proceedings generally be brought for damage or partial loss?

  1. Three years from the date of delivery
  2. Two years from the date of delivery
  3. Six months from the date of delivery
  4. One year from the date of delivery Correct answer.

Explanation

Article 32 CMR sets a one-year limitation period running from the date of delivery, or from the agreed date of delivery where delivery did not occur. The period is extended to three years only in cases of wilful misconduct. The one-year rule is the general default that carriers rely on most often.

Question 5Civil and Commercial Law

Which of the following is a document of title that allows the holder to transfer constructive possession of goods by endorsement?

  1. A CMR consignment note
  2. A bill of lading Correct answer.
  3. A commercial invoice
  4. A packing list

Explanation

A bill of lading is a document of title, so endorsing and delivering it can transfer constructive possession of the goods. The CMR consignment note, by contrast, is expressly not a document of title under Article 9. Invoices and packing lists are commercial records with no possessory function.

Question 6Civil and Commercial Law

A carrier subcontracts the entire run to an owner-driver who negligently causes damage to the goods. How does CMR treat the subcontractor?

  1. The subcontractor is treated as a carrier for the purposes of the Convention Correct answer.
  2. The subcontractor is treated as an agent of the consignee
  3. The subcontractor is liable only for the freight it received
  4. The subcontractor has no exposure because it has no contract with the shipper

Explanation

Article 3 CMR provides that where the carrier entrusts performance to a subcontractor, that subcontractor is treated as a carrier for the purposes of the Convention. This means the shipper can pursue the subcontractor directly and the subcontractor can also invoke the CMR defences and limits. The provision prevents carriers from escaping the regime by outsourcing.

Question 7Civil and Commercial Law

Which of the following is a characteristic of a common carrier at common law?

  1. It is liable as an insurer of the goods against all risks except the recognised exceptions Correct answer.
  2. It is liable only for negligence proven by the consignor
  3. It may refuse any goods without giving reasons
  4. It has no obligation to carry for any person who tenders goods

Explanation

A common carrier at common law is treated as an insurer of the goods, being liable for loss or damage except where caused by an Act of God, inherent vice, fault of the consignor, or an act of the Queen's enemies. It must also carry for all who tender suitable goods on reasonable terms. This strict common law position is often modified by contract for private carriers.

Question 8Civil and Commercial Law

A consignor loads goods onto a vehicle and secures them inadequately. The load shifts in transit and the goods are damaged. Which CMR exception is most directly engaged?

  1. Force majeure
  2. Defective packaging supplied by the carrier
  3. Inherent vice of the goods
  4. Fault of the consignor in loading or securing Correct answer.

Explanation

Article 17(2) CMR relieves the carrier where the loss arises from the fault of the consignor, including loading, stowage, and securing where the carrier was not responsible for those operations. The key is who was contractually responsible for the loading task. Inherent vice concerns the goods' own propensity to deteriorate, not the loading operation.

Question 9Civil and Commercial Law

Under the CMR, when must the carrier deliver the goods against surrender of the consignment note?

  1. Where the consignment note is not marked as non-negotiable Correct answer.
  2. Where the goods exceed a specified value
  3. Only where the consignor has expressly instructed it
  4. Where the consignee is a named company

Explanation

Article 13 CMR provides that the consignee is entitled to require delivery against surrender of the consignment note where the note has not been marked as non-negotiable. The consignment note is not a document of title, but this provision gives it a limited delivery-control function. Marking the note non-negotiable removes that requirement.

Question 10Civil and Commercial Law

Which statement best describes the carrier's right to dispose of the goods where delivery is not possible under the CMR?

  1. The carrier may abandon the goods at the consignee's premises
  2. The carrier must follow the statutory procedure involving notice and, where appropriate, sale or storage Correct answer.
  3. The carrier may sell or destroy the goods at any time without notice
  4. The carrier must always return the goods to the consignor at its own cost

Explanation

Articles 14 to 16 CMR set out a procedure where delivery is impeded: the carrier must seek instructions, give notice to the parties, and may sell or store the goods only in accordance with those provisions. The carrier cannot simply abandon or destroy the goods. Proceeds of sale are held subject to the Convention's rules.

Question 11Civil and Commercial Law

A haulier agrees to carry goods for a customer on its standard terms, which include a clause excluding all liability for damage however caused. Which statement is most accurate in English law?

  1. The clause is unenforceable to the extent it purports to exclude liability for death or personal injury caused by negligence, and is subject to reasonableness for other loss Correct answer.
  2. The clause is effective only if the customer is a consumer
  3. The clause is automatically void because carriers cannot exclude liability
  4. The clause is fully effective because commercial parties are always free to allocate risk

Explanation

The Unfair Contract Terms Act 1977 renders ineffective any term excluding liability for death or personal injury caused by negligence, and subjects other exclusions in business contracts to the reasonableness test. A blanket exclusion of all liability for damage is therefore unlikely to survive scrutiny. The CMR may also override such clauses where it applies.

Question 12Civil and Commercial Law

Which of the following is a key difference between a contract of carriage and a contract of freight forwarding?

  1. A carrier never issues any documentation
  2. A forwarder is always liable as an insurer of the goods
  3. A carrier contracts to transport goods, while a forwarder generally contracts to arrange transport as an agent or in its own name Correct answer.
  4. A forwarder always owns the vehicle used for transport

Explanation

The core distinction turns on what the party undertakes: a carrier promises to perform carriage, whereas a forwarder typically undertakes to arrange carriage and may act as agent or as principal. Whether a forwarder acts as principal depends on the terms of the contract and the conduct of the parties. A forwarder is not automatically an insurer of the goods.

Question 13Civil and Commercial Law

A consignee refuses to take delivery and the carrier stores the goods. Which party is generally liable for the resulting storage charges under the CMR?

  1. The person entitled to dispose of the goods, subject to the Convention's rules Correct answer.
  2. No party, because storage costs are not recoverable
  3. The consignee alone, regardless of the contract
  4. The carrier, because it chose to store the goods

Explanation

Under Article 16 CMR, where delivery is impeded the carrier may store the goods and the costs of storage are borne by the person entitled to dispose of them. The carrier must still follow the Convention's notice and instruction procedure. The allocation is not simply a matter of who physically arranged the storage.

Question 14Civil and Commercial Law

Which statement about the CMR consignment note is correct?

  1. It must be made out in three original copies signed by the consignor and the carrier Correct answer.
  2. It must be notarised by a chamber of commerce
  3. It must be issued only in electronic form
  4. It must be signed by the consignee before loading

Explanation

Article 5 CMR requires the consignment note to be made out in three original copies signed by the consignor and the carrier, with one copy going to each party and one accompanying the goods. The signatures may be printed or stamped where permitted by national law. Notarisation and electronic-only issuance are not requirements of the Convention.

Question 15Civil and Commercial Law

A carrier proves that the damage was caused by the inherent vice of the goods. What is the consequence under the CMR?

  1. The carrier remains liable because liability is strict
  2. The carrier is relieved of liability for that damage Correct answer.
  3. The carrier is liable for half of the loss
  4. The carrier is liable only if the consignor gave notice

Explanation

Article 17(2) CMR lists inherent vice as one of the grounds on which the carrier is relieved of liability. The carrier bears the burden of proving that the damage arose from the goods' own condition rather than from any failure in carriage. Where that proof succeeds, no compensation is payable for that damage.

Question 16Civil and Commercial Law

Which of the following best describes the carrier's obligation regarding the condition of the vehicle under the CMR?

  1. The carrier must ensure the vehicle is suitable for the carriage and properly maintained Correct answer.
  2. The consignor is responsible for the vehicle's roadworthiness
  3. The vehicle's condition is irrelevant if the goods are properly packed
  4. The carrier may use any vehicle provided the goods arrive

Explanation

The carrier is obliged to provide a vehicle suitable for the carriage and in a proper state of repair and maintenance. This obligation reflects the carrier's responsibility for the means of transport under the Convention. Deficiencies in the vehicle that cause damage will generally defeat reliance on the Article 17 exceptions.

Question 17Civil and Commercial Law

A shipper declares a special interest in delivery in the consignment note and pays the agreed surcharge. What is the effect?

  1. It converts the consignment note into a document of title
  2. It transfers liability for loading to the carrier
  3. It may increase the recoverable amount beyond the standard CMR limit Correct answer.
  4. It removes the carrier's ability to rely on any exception

Explanation

Article 24 CMR allows the consignor to declare a special interest in delivery, on payment of a surcharge, which can raise the compensation recoverable above the standard per-kilogram limit. The declaration does not strip the carrier of all defences. Nor does it change the legal character of the consignment note.

Question 18Civil and Commercial Law

Which statutory regime in England and Wales governs the terms on which goods are carried by road for reward, in addition to any applicable international convention?

  1. The Consumer Rights Act 2015
  2. The Bills of Lading Act 1855
  3. The Carriage of Goods by Road Act 1965 Correct answer.
  4. The Sale of Goods Act 1979

Explanation

The Carriage of Goods by Road Act 1965 gives effect in the United Kingdom to the CMR Convention. It is the domestic statute that brings the international road carriage regime into English law. The Sale of Goods Act and the Bills of Lading Act govern different areas, while the Consumer Rights Act concerns consumer contracts.

Question 19Civil and Commercial Law

A consignor hands over goods in apparent good order, but the carrier notes on the consignment note that the packaging was damaged. What is the evidential significance of that reservation?

  1. It shifts the burden of proof entirely to the consignee
  2. It automatically voids the contract of carriage
  3. It may rebut the presumption that the goods were in good condition when taken over Correct answer.
  4. It has no effect because the consignment note is not a document of title

Explanation

Under Article 9(2) CMR, where the carrier makes a reservation on the consignment note about the apparent condition of the goods, that reservation can rebut the presumption that the goods were received in good order. The carrier must still be able to substantiate the reservation if challenged. The note's non-negotiable character does not make the reservation irrelevant.

Question 20Civil and Commercial Law

Which of the following is a recognised ground on which a carrier may be relieved of liability under Article 17(2) CMR?

  1. The consignee requested delivery at a different time
  2. The carrier's driver took a longer route than necessary
  3. The goods were carried in an open vehicle as expressly agreed Correct answer.
  4. The carrier underestimated the freight charge

Explanation

Article 17(2) recognises that where carriage in an open vehicle was expressly agreed and noted on the consignment note, the carrier is not liable for loss or damage arising from that mode of carriage. The other options do not correspond to listed exceptions. Each exception must be proved by the carrier.

Question 21Civil and Commercial Law

A carrier is asked to carry dangerous goods. What obligation does the CMR impose on the consignor?

  1. To accompany the vehicle at all times
  2. To inform the carrier of the exact nature of the danger and, where required, to provide instructions and documents Correct answer.
  3. None, because dangerous goods are outside the Convention
  4. To insure the goods at the carrier's expense

Explanation

Article 22 CMR requires the consignor to inform the carrier of the exact nature of the danger of the goods and, where appropriate, to furnish instructions and documents. Failure to do so can make the consignor liable for resulting loss. The carrier may also refuse, unload, or destroy dangerous goods in certain circumstances.

Question 22Civil and Commercial Law

Which statement about the relationship between the CMR and national law is correct?

  1. The CMR applies only to domestic carriage
  2. The CMR prevails over national law in matters it governs, subject to the Convention's own terms Correct answer.
  3. National law always prevails over the CMR
  4. The CMR applies only where both parties are in the same country

Explanation

As an international convention given effect by statute, the CMR prevails over inconsistent national law in the matters it governs, subject to its own provisions. It applies to international carriage between Contracting States, not to purely domestic movements. Its mandatory character means parties cannot contract out of its core rules.

Question 23Civil and Commercial Law

A carrier's driver leaves the vehicle unattended and loaded overnight in a public layby, and the goods are stolen. Which factor is most relevant to whether the carrier can rely on the theft exception?

  1. Whether the consignee had paid the freight in advance
  2. Whether the carrier took reasonable precautions for the safety of the goods Correct answer.
  3. Whether the theft was reported to the police within 24 hours
  4. Whether the goods were insured by the consignor

Explanation

Article 17(2) CMR relieves the carrier of liability where loss arises from circumstances the carrier could not avoid, but the carrier must show it took reasonable precautions for the safety of the goods. Leaving a loaded vehicle unattended in a public layby may be found to fall short of that standard. The other factors do not determine the availability of the defence.

Question 24Civil and Commercial Law

Which of the following best describes the carrier's liability for delay under the CMR?

  1. The carrier is liable only where delay exceeds 30 days
  2. The carrier is never liable for delay
  3. The carrier is liable for delay only if the goods are damaged
  4. The carrier is liable where delivery exceeds the agreed time or, absent agreement, a reasonable time, subject to the Convention's limits Correct answer.

Explanation

Article 19 CMR makes the carrier liable for delay where delivery has not taken place within the agreed time or, absent agreement, within a reasonable time. Compensation for delay is subject to the limits in Article 23, and the carrier can rely on the Article 17 exceptions. Delay liability is distinct from liability for physical loss or damage.

Question 25Civil and Commercial Law

A consignor inserts a clause in the consignment note purporting to exclude the carrier's liability for damage. What is the effect of that clause under the CMR?

  1. It automatically increases the CMR limitation amount
  2. It is void to the extent that it derogates from the Convention, save for permitted provisions such as a declaration of interest Correct answer.
  3. It converts the contract into a domestic carriage contract
  4. It is valid because the parties are commercial entities

Explanation

Article 41 CMR provides that any stipulation which would directly or indirectly derogate from the Convention is null and void, subject to limited exceptions such as provisions on the value of goods or a declaration of interest. The mandatory character of the Convention protects the cargo interest. A purported exclusion of liability therefore cannot override the CMR regime.

Question 26Civil and Commercial Law

Under the CMR Convention, within what period must the consignee generally give notice of loss or damage that is apparent, if the carrier is to be deprived of the benefit of the presumption that the goods were delivered in good condition?

  1. Within twenty-one days of delivery in every case
  2. On delivery, at the latest at the time of handing over the goods Correct answer.
  3. Within sixty days of the date the consignment note was signed
  4. Within seven days of delivery, Sundays and public holidays excluded

Explanation

Article 30 CMR requires notice of apparent loss or damage to be given at the time of delivery, before the consignee takes over the goods. Where the loss or damage is not apparent, the notice period extends to seven days from delivery. Failure to notify in time leaves the carrier with the presumption that the goods were delivered in the condition described in the consignment note.

Question 27Civil and Commercial Law

A haulier collects a loaded trailer and, on checking the consignment note, sees that the consignor has failed to state the weight of the goods. The vehicle is later stopped and found to be overloaded, and the haulier is fined. How does the CMR allocate responsibility for the accuracy of the particulars in the consignment note?

  1. The carrier is always liable because it accepted the load without weighing it at its own premises
  2. Liability is shared equally because both parties signed the consignment note at collection
  3. The consignee is liable because it is the party with the commercial interest in the goods arriving
  4. The consignor is liable for loss caused by the inaccuracy of the particulars it was required to state, and bears the cost of the fine Correct answer.

Explanation

Under Article 7 CMR the consignor is responsible for all expenses and loss caused by the inaccuracy of the particulars it is required to give, including the weight and quantity of the goods. The carrier's duty to check relates to the apparent condition and packaging, not to verifying the declared weight. A fine arising from an overweight declaration therefore falls on the consignor rather than the carrier.

Question 28Civil and Commercial Law

A haulier's contract with a customer contains a clause stating that the carrier is not liable for any loss of or damage to the goods howsoever caused. The carriage is international road carriage governed by the CMR. What is the effect of that clause?

  1. It is valid, because commercial parties are free to allocate risk as they choose
  2. It reduces the carrier's liability to the value of the goods as declared by the consignor
  3. It is valid only if the clause appears in the consignment note and is signed by the consignee
  4. It is void, because the CMR prohibits clauses derogating from the Convention's liability regime Correct answer.

Explanation

Article 41 CMR provides that any stipulation which would directly or indirectly derogate from the Convention is null and void, subject to narrow exceptions such as those relating to jurisdiction. A blanket exclusion of liability therefore cannot displace the carrier's liability under Article 17. The clause has no effect in an international carriage governed by the CMR.

Question 29Civil and Commercial Law

Which party is responsible under the CMR for ensuring that the goods are properly packed and marked before they are handed to the carrier?

  1. The insurer of the goods
  2. The consignor Correct answer.
  3. The carrier
  4. The consignee

Explanation

Article 10 CMR places the responsibility for the accuracy of statements about the goods and for their packaging on the consignor. The carrier's duty is to check the apparent condition of the goods and their packaging on taking them over, not to pack them. Damage resulting from defective packing is therefore the consignor's responsibility.

Question 30Civil and Commercial Law

A carrier's vehicle is involved in a collision caused solely by the fault of a third-party driver. The goods are destroyed, and the consignee claims against the carrier under the CMR. Which statement best describes the carrier's position?

  1. The carrier is liable only up to the value of the freight charge for the journey
  2. The carrier is liable only if the consignee first sues the third-party driver and fails to recover
  3. The carrier is automatically released because the collision was not its own fault
  4. The carrier is liable to the consignee because it bears the risk of loss, and it may then pursue the third party Correct answer.

Explanation

Under Article 17 CMR the carrier is liable for loss or damage occurring between taking over and delivery unless it can rely on one of the enumerated exceptions, and the fault of a third party is not among them. The carrier's remedy is to bring a recourse action against the party actually at fault. The consignee is not required to pursue the third party first.

Question 31Business and Financial Management

A haulage operator wants to know which financial statement shows the profit or loss made over an accounting period rather than the financial position at a single date. Which statement is it?

  1. Statement of financial position
  2. Bank reconciliation statement
  3. Trial balance
  4. Profit and loss account Correct answer.

Explanation

The profit and loss account (income statement) summarises trading income and expenditure over a period and arrives at the operating profit or loss. The statement of financial position is a snapshot at a single date, while reconciliations and trial balances are internal checks rather than performance reports.

Question 32Business and Financial Management

In a road haulage business, diesel, driver wages and tyre replacement are best classified as which type of cost?

  1. Variable costs Correct answer.
  2. Sunk costs
  3. Fixed costs
  4. Capital costs

Explanation

Variable costs change broadly in line with the distance run or the number of loads carried, which is exactly how fuel, driver hours and tyre wear behave in haulage. Fixed costs such as vehicle excise duty or depot rent are incurred regardless of mileage.

Question 33Business and Financial Management

A vehicle costing £90,000 is depreciated on a straight-line basis over six years to a nil residual value. What is the annual depreciation charge?

  1. £15,000 Correct answer.
  2. £12,000
  3. £9,000
  4. £18,000

Explanation

Straight-line depreciation spreads the depreciable amount evenly: £90,000 divided by six years gives £15,000 per year. Residual value is nil, so no amount is deducted before dividing.

Question 34Business and Financial Management

An operator calculates vehicle operating costs per kilometre so that haulage rates can be quoted. Which cost should be excluded when setting a short-run rate for a specific additional load?

  1. Motorway tolls on the route
  2. Fuel for the journey
  3. The original purchase price of a vehicle already owned Correct answer.
  4. Driver overtime for the trip

Explanation

The purchase price of a vehicle already owned is a sunk cost; the money is spent and cannot be recovered by accepting or rejecting the load. Incremental costs such as fuel, overtime and tolls are the relevant costs for pricing an additional trip.

Question 35Business and Financial Management

A haulier's annual fixed costs are £240,000 and each load yields a contribution of £400. What is the break-even number of loads per year?

  1. 600 loads Correct answer.
  2. 480 loads
  3. 400 loads
  4. 960 loads

Explanation

Break-even volume equals fixed costs divided by contribution per unit: £240,000 ÷ £400 = 600 loads. At that volume total contribution exactly covers fixed costs and profit is nil.

Question 36Business and Financial Management

Which document should a haulier issue to a customer to request payment for carriage services supplied on credit?

  1. Purchase order
  2. Sales invoice Correct answer.
  3. Delivery note
  4. Consignment note

Explanation

A sales invoice is the commercial document that states the services supplied, the amount due and the payment terms, and it creates the receivable in the accounts. Consignment and delivery notes evidence the movement of goods but do not demand payment.

Question 37Business and Financial Management

A customer is given 30 days to pay but settles after 75 days. Which measure does this directly worsen?

  1. Stock turnover
  2. Gearing ratio
  3. Gross profit margin
  4. Debtor days Correct answer.

Explanation

Debtor days measure the average time taken to collect money from credit customers, so slow payment lengthens this ratio and ties up working capital. Gross margin, stock turnover and gearing are unaffected by the timing of a receipt.

Question 38Business and Financial Management

An operator takes out a loan to buy three new tractor units. How does this transaction affect the statement of financial position?

  1. Liabilities increase and capital decreases
  2. Assets increase and liabilities increase Correct answer.
  3. Assets increase and capital increases
  4. Assets decrease and liabilities decrease

Explanation

The vehicles add to non-current assets while the loan adds to liabilities, so the statement of financial position grows on both sides. Capital is not directly changed because the transaction is financed by debt rather than owner funds.

Question 39Business and Financial Management

Which of the following is a source of short-term finance most suited to bridging the gap between paying for fuel and receiving payment from customers?

  1. A mortgage on the operating depot
  2. An issue of ordinary shares
  3. An overdraft facility Correct answer.
  4. A five-year vehicle hire purchase agreement

Explanation

An overdraft is a flexible short-term facility that can be drawn and repaid as the cash cycle swings, matching the timing gap between outgoings and customer receipts. Hire purchase, share issues and mortgages are long-term sources intended to fund assets or capital.

Question 40Business and Financial Management

A haulier's revenue is £500,000, direct costs are £350,000 and overheads are £100,000. What is the operating profit margin?

  1. 10% Correct answer.
  2. 30%
  3. 20%
  4. 70%

Explanation

Operating profit is £500,000 − £350,000 − £100,000 = £50,000, which is 10% of revenue. The margin expresses profit after both direct costs and overheads, not just after direct costs.

Question 41Business and Financial Management

Which statement best describes the purpose of a cash flow forecast in a road haulage business?

  1. To predict the timing of cash receipts and payments so shortfalls can be anticipated Correct answer.
  2. To calculate the tax payable on profits
  3. To value the fleet at the year end
  4. To record the profit earned in the last accounting period

Explanation

A cash flow forecast projects month-by-month inflows and outflows so the operator can arrange facilities before a shortfall arises. It deals with timing of cash, not with profit measurement, asset valuation or tax computation.

Question 42Business and Financial Management

An operator's gearing ratio is high and profits are falling. Which risk is most directly associated with this position?

  1. Inability to meet interest payments as they fall due Correct answer.
  2. Under-utilisation of the vehicle fleet
  3. Overstocking of spare parts
  4. Excessive debtor balances

Explanation

High gearing means a large share of finance is borrowed, so fixed interest obligations absorb a big slice of profit. When profits fall, cover for those interest payments narrows and default risk rises.

Question 43Business and Financial Management

Which of the following is treated as a non-current asset in a haulage company's accounts?

  1. A bank overdraft
  2. Diesel held in the depot tank
  3. The fleet of semi-trailers Correct answer.
  4. A customer invoice due in 45 days

Explanation

Semi-trailers are held for use in the business over several years and are therefore non-current assets subject to depreciation. Fuel stock and trade receivables are current assets, and an overdraft is a current liability.

Question 44Business and Financial Management

A haulier is deciding whether to replace an ageing vehicle now or run it for another year. Which approach best supports the decision financially?

  1. Compare the original cost of the old vehicle with the price of a new one
  2. Compare the future running costs and resale values of each option over the next year Correct answer.
  3. Rely on the depreciation charge already recorded in the accounts
  4. Choose the option with the lowest monthly finance payment

Explanation

A replacement decision should compare the incremental future costs and benefits of each option, including running costs and the resale value forgone by keeping the old vehicle. Historic purchase price and book depreciation are past allocations that do not change with the decision.

Question 45Business and Financial Management

Which of these items would normally be deducted before arriving at a haulier's taxable trading profit?

  1. Depreciation charged on the vehicle fleet
  2. Business entertaining of UK customers
  3. Wages paid to loading staff Correct answer.
  4. Repayment of the principal on a bank loan

Explanation

Wages of loading staff are ordinary trading expenses incurred wholly and exclusively for the trade and are allowable. Depreciation is replaced by capital allowances for tax, loan principal is a capital repayment, and most business entertaining is disallowed.

Question 46Business and Financial Management

An operator's vehicle is off the road after an accident and hire charges for a replacement are incurred. How should this be treated in the accounts?

  1. As a reduction of the vehicle's carrying value
  2. As a movement in capital
  3. As a non-current asset
  4. As an operating expense in the period incurred Correct answer.

Explanation

Replacement hire charges are a cost of running the business during the period and are written off as an operating expense. They do not add value to the damaged vehicle nor represent an asset or capital movement.

Question 47Business and Financial Management

What is the main accounting purpose of the accruals concept in a haulage business?

  1. To record all transactions only when the bank statement confirms them
  2. To record income and costs in the period to which they relate rather than when cash moves Correct answer.
  3. To ensure that total debits equal total credits
  4. To spread the purchase cost of vehicles over their useful lives

Explanation

Accruals matches revenue earned with the costs incurred in generating it, regardless of the cash timing. This is why an invoice for haulage work done in March is recognised in March even if paid in May.

Question 48Business and Financial Management

A haulier has current assets of £180,000 and current liabilities of £120,000. What is the current ratio?

  1. 1.50 Correct answer.
  2. 1.33
  3. 2.00
  4. 0.67

Explanation

The current ratio is current assets divided by current liabilities: £180,000 ÷ £120,000 = 1.50. It indicates that short-term assets cover short-term obligations one and a half times.

Question 49Business and Financial Management

Which costing method is most appropriate when a haulier wants to know the cost of a single named contract involving several vehicles and subcontracted legs?

  1. Standard costing
  2. Job costing Correct answer.
  3. Process costing
  4. Marginal costing

Explanation

Job costing accumulates all direct costs and an allocation of overhead for a specific, identifiable contract or assignment. Process costing suits continuous homogeneous production, while marginal and standard costing are techniques for decision-making and control rather than contract costing.

Question 50Business and Financial Management

A customer fails to pay an invoice and the debt is judged irrecoverable. What is the accounting treatment?

  1. Write the debt off as a bad debt expense Correct answer.
  2. Transfer it to the vehicle depreciation account
  3. Record it as a non-current asset
  4. Increase the sales figure for the period

Explanation

An irrecoverable receivable is removed from trade debtors and charged as a bad debt expense in the profit and loss account. It cannot remain as an asset because no future benefit is expected.