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CPA Rwanda practice questions

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Question 1Financial Accounting and Reporting

Under the IASB Conceptual Framework, which qualitative characteristic requires information to be capable of making a difference in users' decisions?

  1. Relevance Correct answer.
  2. Comparability
  3. Verifiability
  4. Timeliness

Explanation

Relevance is the fundamental qualitative characteristic meaning information can make a difference in decisions through predictive or confirmatory value. Comparability, timeliness and verifiability are enhancing characteristics that support useful information but do not themselves define decision-altering capacity.

Question 2Financial Accounting and Reporting

A company receives cash in advance for services to be delivered next year. Under accrual accounting, how should this be recorded at receipt?

  1. As revenue, because cash has been received
  2. As equity, because no obligation exists
  3. As an asset, because the entity holds cash
  4. As a liability, because the performance obligation is unmet Correct answer.

Explanation

Accrual accounting recognises revenue when the performance obligation is satisfied, not when cash is received. Cash received before performance creates a contract liability (deferred income) representing the obligation to deliver services.

Question 3Financial Accounting and Reporting

Which of the following is an intangible asset that may be recognised under IAS 38?

  1. Internally generated goodwill
  2. Staff training costs
  3. A customer list developed internally at low cost
  4. Acquired computer software Correct answer.

Explanation

IAS 38 permits recognition of intangibles acquired separately or in a business combination when identifiable and controlled. Internally generated goodwill, internally developed customer lists and training costs are expensed because they fail identifiability or control criteria.

Question 4Financial Accounting and Reporting

An entity issues 10,000 ordinary shares with a nominal value of RWF 100 each at RWF 350 per share. What amount is credited to share premium?

  1. RWF 1,000,000
  2. RWF 3,500,000
  3. RWF 2,500,000 Correct answer.
  4. RWF 250,000

Explanation

Share capital is credited with the nominal value (10,000 × RWF 100 = RWF 1,000,000). The excess of issue price over nominal value is share premium: 10,000 × (RWF 350 − RWF 100) = RWF 2,500,000.

Question 5Financial Accounting and Reporting

Under IAS 2, which cost formula is prohibited for inventories of items that are ordinarily interchangeable?

  1. First-in, first-out
  2. Weighted average cost
  3. Last-in, first-out Correct answer.
  4. Specific identification

Explanation

IAS 2 requires FIFO or weighted average cost for interchangeable items because LIFO can distort the balance sheet and is not permitted. Specific identification is required where items are not ordinarily interchangeable.

Question 6Financial Accounting and Reporting

A machine costing RWF 500,000 has an estimated residual value of RWF 50,000 and a useful life of 5 years. Under straight-line depreciation, what is the annual charge?

  1. RWF 100,000
  2. RWF 50,000
  3. RWF 110,000
  4. RWF 90,000 Correct answer.

Explanation

Straight-line depreciation is (cost − residual value) ÷ useful life. (500,000 − 50,000) ÷ 5 = RWF 90,000 per year.

Question 7Financial Accounting and Reporting

Which financial statement reports changes in equity during a period, including transactions with owners?

  1. Statement of changes in equity Correct answer.
  2. Statement of financial position
  3. Statement of profit or loss
  4. Statement of cash flows

Explanation

IAS 1 requires a statement of changes in equity showing total comprehensive income, owner transactions and other movements in each component of equity. The other statements report financial position, cash flows or performance, not equity movements.

Question 8Financial Accounting and Reporting

Which of the following items is classified as a current liability under IAS 1?

  1. Share capital
  2. Trade payables due within 90 days Correct answer.
  3. A 10-year bank loan repayable in 2032
  4. Retained earnings

Explanation

A liability is current when it is expected to be settled in the normal operating cycle, held primarily for trading, due within twelve months, or the entity has no unconditional right to defer settlement. Trade payables due within 90 days meet this definition.

Question 9Financial Accounting and Reporting

An entity sells goods for RWF 1,000,000 on credit with terms 2/10, net 30, using the gross method. The customer pays within the discount period. What amount of cash is received?

  1. RWF 960,000
  2. RWF 1,020,000
  3. RWF 1,000,000
  4. RWF 980,000 Correct answer.

Explanation

A 2% discount on RWF 1,000,000 equals RWF 20,000, so cash received is RWF 980,000. Under the gross method, the discount is recorded when the customer takes it.

Question 10Financial Accounting and Reporting

A company has profit before tax of RWF 800,000. Taxable temporary differences of RWF 200,000 exist at a tax rate of 25%. What deferred tax liability should be recognised?

  1. RWF 50,000 Correct answer.
  2. RWF 25,000
  3. RWF 200,000
  4. RWF 0

Explanation

A taxable temporary difference creates a deferred tax liability measured at the expected reversal rate. RWF 200,000 × 25% = RWF 50,000.

Question 11Financial Accounting and Reporting

Under IFRS 15, when should revenue from a performance obligation satisfied over time be recognised?

  1. Only when the contract is completed
  2. In proportion to progress toward completion Correct answer.
  3. When cash is received from the customer
  4. When the customer signs the contract

Explanation

For over-time performance, IFRS 15 requires revenue recognition based on progress toward complete satisfaction, using output or input measures. Recognition is not deferred to completion, nor tied to cash receipts or contract signature.

Question 12Financial Accounting and Reporting

Which of the following costs should be capitalised as part of the cost of property, plant and equipment under IAS 16?

  1. Costs of conducting business in a new location
  2. Costs of opening a new facility
  3. Installation and testing costs Correct answer.
  4. Staff training costs

Explanation

IAS 16 includes costs directly attributable to bringing the asset to the location and condition necessary for its intended use, such as installation and testing. Costs of opening a facility, introducing a product, or training staff are excluded.

Question 13Financial Accounting and Reporting

An entity has a receivable of RWF 100,000 from a customer. It estimates that 5% of receivables will be uncollectible. What is the required allowance for doubtful debts?

  1. RWF 10,000
  2. RWF 500
  3. RWF 5,000 Correct answer.
  4. RWF 95,000

Explanation

The allowance is the estimated uncollectible portion: RWF 100,000 × 5% = RWF 5,000. It is presented as a deduction from receivables.

Question 14Financial Accounting and Reporting

Under IAS 7, which of the following is classified as a financing activity?

  1. Payment of income tax
  2. Purchase of inventory for cash
  3. Interest received on bank deposits
  4. Proceeds from issuing ordinary shares Correct answer.

Explanation

IAS 7 classifies financing activities as those that change the size and composition of contributed equity and borrowings. Issuing shares is a financing cash inflow.

Question 15Financial Accounting and Reporting

A company acquires 80% of a subsidiary for RWF 800,000. The fair value of the subsidiary's net identifiable assets is RWF 900,000. Using the proportionate method for non-controlling interests, what is goodwill?

  1. RWF 100,000
  2. RWF 80,000 Correct answer.
  3. RWF 0
  4. RWF 20,000

Explanation

Under the proportionate method, goodwill = consideration − parent's share of net identifiable assets. Parent's share = 80% × RWF 900,000 = RWF 720,000. Goodwill = RWF 800,000 − RWF 720,000 = RWF 80,000.

Question 16Financial Accounting and Reporting

Under IAS 36, when should an impairment loss on a cash-generating unit be allocated first?

  1. To the unit's inventory
  2. To goodwill allocated to the unit Correct answer.
  3. To the largest asset in the unit
  4. Equally across all assets

Explanation

IAS 36 requires the impairment loss to reduce the carrying amount of any goodwill allocated to the cash-generating unit first, then to other assets pro rata.

Question 17Financial Accounting and Reporting

An entity issues a bond with a face value of RWF 1,000,000 at a discount, yielding proceeds of RWF 950,000. Under the effective interest method, how is the discount treated?

  1. Amortised over the bond's life, increasing interest expense Correct answer.
  2. Recognised immediately in profit or loss
  3. Recorded as a reduction in share capital
  4. Ignored until maturity

Explanation

Under IFRS 9, a bond issued at a discount is initially recognised at fair value, and the discount is amortised over the term using the effective interest method, increasing interest expense.

Question 18Financial Accounting and Reporting

Which of the following is a key requirement for a provision to be recognised under IAS 37?

  1. A future obligation from a planned transaction
  2. A possible obligation that is only remotely likely
  3. A present obligation arising from a past event, probable outflow and reliable estimate Correct answer.
  4. A contingent asset expected to arise

Explanation

IAS 37 requires a present obligation from a past event, a probable outflow of resources, and a reliable estimate. Future obligations and remote contingencies do not meet the recognition criteria.

Question 19Financial Accounting and Reporting

An entity has a building with a carrying amount of RWF 2,000,000 and a fair value less costs of disposal of RWF 1,700,000. Its value in use is RWF 1,800,000. What is the recoverable amount?

  1. RWF 1,800,000 Correct answer.
  2. RWF 1,700,000
  3. RWF 2,000,000
  4. RWF 3,500,000

Explanation

Recoverable amount is the higher of fair value less costs of disposal and value in use. The higher of RWF 1,700,000 and RWF 1,800,000 is RWF 1,800,000.

Question 20Financial Accounting and Reporting

Under IFRS 16, how does a lessee initially measure a right-of-use asset?

  1. At the present value of lease payments only
  2. At the lease liability plus initial direct costs and any prepaid lease payments Correct answer.
  3. At the fair value of the underlying asset
  4. At the undiscounted total of all lease payments

Explanation

IFRS 16 requires the right-of-use asset to be measured at the amount of the initial lease liability, adjusted for initial direct costs, prepayments, lease incentives and estimated restoration costs.

Question 21Financial Accounting and Reporting

A company's inventory cost is RWF 500,000 and its net realisable value is RWF 450,000. Under IAS 2, at what amount should inventory be reported?

  1. RWF 500,000
  2. RWF 450,000 Correct answer.
  3. RWF 475,000
  4. RWF 550,000

Explanation

IAS 2 requires inventory to be measured at the lower of cost and net realisable value. Since NRV of RWF 450,000 is below cost, inventory is written down to RWF 450,000.

Question 22Financial Accounting and Reporting

A parent sells inventory to its subsidiary at a profit of RWF 100,000. At year end, the subsidiary still holds all the inventory. What consolidation adjustment is required?

  1. Increase consolidated inventory by RWF 100,000
  2. Recognise the profit in consolidated profit or loss
  3. No adjustment, because the sale is a legal transaction
  4. Eliminate the unrealised profit from inventory and profit Correct answer.

Explanation

Intra-group profits on inventory still held at year end are unrealised from the group's perspective and must be eliminated. This reduces consolidated inventory and consolidated profit by the unrealised amount.

Question 23Financial Accounting and Reporting

An entity has profit before tax of RWF 1,000,000 and a tax rate of 30%. It has a deductible temporary difference of RWF 200,000 expected to reverse next year. Assuming the deferred tax asset is probable, what is the current tax expense?

  1. RWF 300,000 Correct answer.
  2. RWF 240,000
  3. RWF 360,000
  4. RWF 60,000

Explanation

Current tax is based on taxable profit, which is accounting profit adjusted for temporary differences. A deductible temporary difference reduces taxable profit: (1,000,000 − 200,000) × 30% = RWF 240,000. Wait-current tax uses taxable profit, so the answer is RWF 240,000.

Question 24Financial Accounting and Reporting

An entity has a defined benefit obligation with a present value of RWF 1,200,000 and plan assets with a fair value of RWF 1,000,000. Actuarial losses of RWF 150,000 arise during the year. Under IAS 19, how are actuarial losses recognised?

  1. Recognised immediately in profit or loss
  2. Deferred and amortised over the average remaining service life
  3. Recognised as a reduction in plan assets
  4. Recognised immediately in other comprehensive income Correct answer.

Explanation

IAS 19 requires remeasurements, including actuarial gains and losses, to be recognised immediately in other comprehensive income. They are not amortised or taken to profit or loss.

Question 25Financial Accounting and Reporting

An entity reports profit before tax of RWF 2,000,000. It has an unrealised gain on a revaluation of land of RWF 300,000 and a tax rate of 25%. What is the deferred tax effect of the revaluation?

  1. No deferred tax arises
  2. RWF 75,000 deferred tax asset recognised in profit or loss
  3. RWF 300,000 deferred tax liability
  4. RWF 75,000 deferred tax liability recognised in OCI Correct answer.

Explanation

A revaluation surplus creates a taxable temporary difference. The related deferred tax of RWF 300,000 × 25% = RWF 75,000 is recognised in OCI, consistent with where the gain is recognised.

Question 26Financial Accounting and Reporting

Under the IASB Conceptual Framework, which qualitative characteristic requires information to be capable of making a difference in the decisions made by users?

  1. Timeliness
  2. Verifiability
  3. Comparability
  4. Relevance Correct answer.

Explanation

Relevance is the fundamental qualitative characteristic that makes information capable of influencing decisions, including its predictive and confirmatory value and materiality. Comparability, verifiability and timeliness are enhancing characteristics that support useful information but do not themselves make information decision-altering.

Question 27Financial Accounting and Reporting

An entity's trial balance shows total debits of RWF 940,000 and total credits of RWF 900,000. Which action would most appropriately correct this situation?

  1. Record a suspense account balance of RWF 40,000 on the debit side of the trial balance
  2. Record a suspense account balance of RWF 40,000 on the credit side of the trial balance Correct answer.
  3. Reduce the total of the debit column by RWF 40,000
  4. Post a RWF 40,000 debit entry directly to retained earnings

Explanation

When the trial balance does not balance, the difference is placed in a suspense account so that a balanced trial balance can be prepared pending investigation. Because credits are lower than debits, the suspense account is credited with RWF 40,000. The difference must then be investigated and corrected through proper journal entries.

Question 28Financial Accounting and Reporting

Which of the following is an example of an accounting error that will cause the trial balance totals to disagree?

  1. Omitting a purchase invoice from the books entirely
  2. Posting a payment of RWF 30,000 to the bank column as RWF 3,000 only
  3. Recording a sale on credit by debiting receivables and crediting sales correctly
  4. Recording a cash sale by debiting cash and crediting sales with different amounts Correct answer.

Explanation

A one-sided error, where the debit and credit amounts entered for the same transaction differ, leaves the double entry unequal and therefore makes the trial balance totals disagree. Errors of omission, complete reversal and certain posting errors to the wrong account on both sides do not affect the equality of the totals.

Question 29Financial Accounting and Reporting

An entity uses the revaluation model under IAS 16 for a building. The carrying amount is RWF 1,000,000 and the revalued amount is RWF 1,300,000. There is no previous revaluation surplus for this asset. How should the increase be treated?

  1. Recognise RWF 300,000 as a deferred tax asset
  2. Recognise RWF 300,000 as a reduction of accumulated depreciation
  3. Recognise RWF 300,000 in profit or loss as a gain
  4. Recognise RWF 300,000 in other comprehensive income and accumulate it in equity Correct answer.

Explanation

Under IAS 16, an increase in carrying amount on revaluation is recognised in other comprehensive income and accumulated in equity as a revaluation surplus, unless it reverses a previous revaluation decrease recognised in profit or loss. Because there is no prior decrease, the full increase goes to other comprehensive income.

Question 30Financial Accounting and Reporting

Which of the following best describes the treatment of borrowing costs under IAS 23 when an entity constructs a qualifying asset?

  1. Borrowing costs directly attributable to the acquisition or construction of a qualifying asset are capitalised as part of its cost Correct answer.
  2. All borrowing costs must be expensed as incurred regardless of the asset
  3. Borrowing costs are recognised as a liability until the asset is sold
  4. Borrowing costs are capitalised only if the asset is completed within one year

Explanation

IAS 23 requires borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset to be capitalised as part of the cost of that asset. Other borrowing costs are recognised as an expense. Capitalisation ceases when substantially all activities necessary to prepare the asset for its intended use are complete.

Question 31Financial Accounting and Reporting

An entity has a machine with a carrying amount of RWF 800,000 at the start of the year. Depreciation is 10% per annum on the reducing balance basis. What is the depreciation expense for the second year?

  1. RWF 72,000 Correct answer.
  2. RWF 88,000
  3. RWF 64,000
  4. RWF 80,000

Explanation

Under the reducing balance method, depreciation is calculated on the carrying amount at the start of each period. Year one depreciation is RWF 80,000, leaving a carrying amount of RWF 720,000; year two depreciation is therefore 10% of RWF 720,000, which is RWF 72,000.

Question 32Financial Accounting and Reporting

Under IAS 38, which of the following costs should be recognised as an expense when incurred rather than capitalised as an intangible asset?

  1. Research costs incurred before technical feasibility is established Correct answer.
  2. Costs of testing a completed prototype
  3. Directly attributable costs of preparing an acquired licence for use
  4. Legal fees incurred to register a patent

Explanation

IAS 38 requires research expenditure to be recognised as an expense when incurred because the entity cannot demonstrate that an intangible asset exists that will generate probable future economic benefits. Development costs may be capitalised only after the recognition criteria are met.

Question 33Financial Accounting and Reporting

An entity grants 100 share options to each of its 50 employees, vesting after three years of service. The fair value of each option at grant date is RWF 20. The entity expects all 50 employees to remain for the vesting period. What is the expense recognised in the first year under IFRS 2?

  1. RWF 33,333 Correct answer.
  2. RWF 100,000
  3. RWF 20,000
  4. RWF 0

Explanation

The total fair value of the options is 100 options × 50 employees × RWF 20 = RWF 100,000, recognised over the three-year vesting period. The first-year expense is therefore RWF 100,000 ÷ 3, approximately RWF 33,333.

Question 34Financial Accounting and Reporting

Which of the following best describes the treatment of a change in accounting estimate under IAS 8?

  1. It is applied retrospectively by restating prior period comparatives
  2. It requires restatement of all prior financial statements presented
  3. It is treated as a prior period error and corrected through retained earnings
  4. It is applied prospectively by recognising its effect in the current and future periods Correct answer.

Explanation

IAS 8 requires the effect of a change in accounting estimate to be recognised prospectively, affecting current and future periods. Retrospective restatement applies to changes in accounting policy and corrections of prior period errors, not to changes in estimates.

Question 35Financial Accounting and Reporting

An entity has a defined contribution plan. It contributes RWF 150,000 to the plan during the year. The plan assets earn a return of RWF 40,000. What amount should the entity recognise as an expense for the year?

  1. RWF 150,000 Correct answer.
  2. RWF 190,000
  3. RWF 110,000
  4. RWF 40,000

Explanation

Under IAS 19, the expense for a defined contribution plan is the contribution payable for the period. Investment returns on plan assets are borne by the employees, not the entity, so they do not affect the entity's expense.

Question 36Financial Accounting and Reporting

An entity has a foreign currency payable of USD 10,000 when the exchange rate is 1 USD = RWF 1,200. At the reporting date the rate is 1 USD = RWF 1,250. How should the difference be treated under IAS 21?

  1. Recognise an exchange gain of RWF 500,000 in profit or loss
  2. Recognise an exchange loss of RWF 500,000 in other comprehensive income
  3. Recognise an exchange loss of RWF 500,000 in profit or loss Correct answer.
  4. Ignore the difference until the payable is settled

Explanation

A foreign currency monetary item is retranslated at the closing rate at each reporting date. The payable increases from RWF 12,000,000 to RWF 12,500,000, producing an exchange loss of RWF 500,000 that is recognised in profit or loss.

Question 37Financial Accounting and Reporting

Which of the following items is presented within other comprehensive income rather than in profit or loss?

  1. Depreciation of office furniture
  2. Actuarial gains and losses on a defined benefit plan Correct answer.
  3. Interest expense on a bank loan
  4. Gain on disposal of equipment

Explanation

Under IAS 19, remeasurements of a defined benefit plan, including actuarial gains and losses, are recognised in other comprehensive income and are not subsequently reclassified to profit or loss. Ordinary operating items such as depreciation, interest and disposal gains are recognised in profit or loss.

Question 38Financial Accounting and Reporting

An entity has a lease liability of RWF 500,000 at the start of the year, with an implicit interest rate of 6%. Lease payments of RWF 120,000 are made at the end of the year. What is the carrying amount of the lease liability at the end of the year under IFRS 16?

  1. RWF 410,000 Correct answer.
  2. RWF 500,000
  3. RWF 380,000
  4. RWF 530,000

Explanation

Interest of 6% is added to the opening liability (RWF 500,000 × 6% = RWF 30,000), giving RWF 530,000, and the payment of RWF 120,000 is deducted, leaving RWF 410,000. Under IFRS 16 the lease liability is measured at amortised cost using the effective interest method.

Question 39Financial Accounting and Reporting

An entity has cash of RWF 200,000, inventory of RWF 300,000, receivables of RWF 150,000 and current liabilities of RWF 250,000. What is the quick ratio?

  1. 2.60
  2. 1.40 Correct answer.
  3. 1.80
  4. 0.60

Explanation

The quick ratio excludes inventory from current assets: (RWF 200,000 + RWF 150,000) ÷ RWF 250,000 = 1.40. Inventory is excluded because it is generally the least liquid current asset.

Question 40Financial Accounting and Reporting

A company reports profit before tax of RWF 500,000. It has an unrealised gain on revaluation of land of RWF 80,000 and a non-deductible fine of RWF 20,000. The tax rate is 25%. What is the total tax expense recognised in profit or loss for the year?

  1. RWF 120,000 Correct answer.
  2. RWF 130,000
  3. RWF 125,000
  4. RWF 145,000

Explanation

The revaluation gain is recognised in other comprehensive income and is not included in the profit before tax figure used for the tax charge in profit or loss. The non-deductible fine must be added back, giving taxable profit of RWF 520,000, and tax at 25% is RWF 130,000? No: 25% of RWF 520,000 is RWF 130,000. The correct tax on profit before tax plus the add-back is RWF 130,000.

Question 41Management Accounting and Performance Management

A company has fixed costs of RWF 60,000, a unit selling price of RWF 20 and unit variable cost of RWF 12. What is the break-even point in units?

  1. 5,000 units
  2. 1,875 units
  3. 3,000 units
  4. 7,500 units Correct answer.

Explanation

Break-even units equal fixed costs divided by the unit contribution margin. Contribution per unit is RWF 20 − RWF 12 = RWF 8, so RWF 60,000 ÷ RWF 8 = 7,500 units.

Question 42Management Accounting and Performance Management

Which costing method assigns all manufacturing costs, including fixed production overhead, to units produced?

  1. Marginal costing
  2. Absorption costing Correct answer.
  3. Activity-based costing
  4. Standard costing

Explanation

Absorption costing treats fixed production overhead as a product cost and allocates it to units. Marginal costing treats fixed overhead as a period cost, while ABC and standard costing are techniques that can operate within either framework.

Question 43Management Accounting and Performance Management

A company uses a standard cost of 3 kg of material at RWF 5 per kg per unit. It produced 1,000 units using 3,200 kg costing RWF 16,640. What is the material price variance?

  1. RWF 1,000 adverse
  2. RWF 640 adverse Correct answer.
  3. RWF 1,600 favourable
  4. RWF 640 favourable

Explanation

The price variance compares actual quantity at actual price with actual quantity at standard price. Actual cost RWF 16,640 minus (3,200 kg × RWF 5 = RWF 16,000) gives RWF 640 adverse because more was paid than standard.

Question 44Management Accounting and Performance Management

In a process costing system where losses are expected and have no scrap value, how are normal losses treated?

  1. Written off to the profit and loss account
  2. Carried forward as work in progress
  3. Deducted from the cost of raw materials
  4. Absorbed into the cost of good output Correct answer.

Explanation

Normal loss is an unavoidable part of the process, so its cost is borne by the good units produced. Abnormal losses, by contrast, are written off separately.

Question 45Management Accounting and Performance Management

A product sells for RWF 50 with variable cost of RWF 30 per unit and fixed costs of RWF 100,000. What is the margin of safety in units when actual sales are 8,000 units?

  1. 5,000 units
  2. 3,000 units Correct answer.
  3. 6,000 units
  4. 2,000 units

Explanation

Break-even units are RWF 100,000 ÷ RWF 20 = 5,000 units. Margin of safety is actual sales minus break-even sales, i.e. 8,000 − 5,000 = 3,000 units.

Question 46Management Accounting and Performance Management

Which budget is prepared first in a master budgeting process for a manufacturing firm?

  1. Cash budget
  2. Sales budget Correct answer.
  3. Production budget
  4. Direct labour budget

Explanation

The sales budget drives all other operating budgets because production, purchases and labour are planned to meet forecast sales. The cash budget is a later financial budget derived from the operating budgets.

Question 47Management Accounting and Performance Management

A manager is evaluated on divisional profit after deducting a charge for the capital employed. Which performance measure is being used?

  1. Return on investment
  2. Gross profit margin
  3. Residual income Correct answer.
  4. Contribution margin

Explanation

Residual income is divisional profit less an imputed interest charge on the capital invested. ROI is a ratio of profit to capital and does not deduct an explicit capital charge.

Question 48Management Accounting and Performance Management

A division has profit of RWF 200,000 and capital employed of RWF 1,000,000. The company's imputed interest rate is 12%. What is the residual income?

  1. RWF 200,000
  2. RWF 80,000 Correct answer.
  3. RWF 320,000
  4. RWF 120,000

Explanation

Residual income equals profit minus the imputed interest charge (capital employed × rate). The charge is RWF 1,000,000 × 12% = RWF 120,000, so RI is RWF 200,000 − RWF 120,000 = RWF 80,000.

Question 49Management Accounting and Performance Management

A company produces 1,000 units with a standard of 2 labour hours per unit at RWF 10 per hour. Actual hours were 1,900 and actual cost was RWF 20,900. What is the labour efficiency variance?

  1. RWF 900 adverse
  2. RWF 1,000 adverse
  3. RWF 1,000 favourable Correct answer.
  4. RWF 900 favourable

Explanation

Efficiency variance compares actual hours with standard hours allowed, valued at the standard rate. Standard hours allowed are 2,000; actual hours 1,900, giving 100 hours × RWF 10 = RWF 1,000 favourable.

Question 50Management Accounting and Performance Management

Which costing technique traces overhead costs to activities and then to products based on their consumption of those activities?

  1. Job costing
  2. Batch costing
  3. Activity-based costing Correct answer.
  4. Process costing

Explanation

Activity-based costing identifies cost drivers and allocates overhead according to each product's use of activities. Job, process and batch costing are methods of accumulating product costs rather than overhead attribution techniques.