, Business and Finance, ICAB

1. Business & Finance
Chapter # 1: Introduction to business
Q-1) What is organization?
Organization is a social arrangement for
the controlled performance of collective
goals, which has a boundary separating it
from its environment.
Profit-oriented – A multinational car
manufacture, An accounting firm,
Not-for-profit – A charity, A trade union, A
local Authority, An army, A club,
Q-2) Why do organizations exist?
Organizations exist because they:
 Overcome people’s individual
limitation,
 Enable people to specialize
 Save time
 Accumulate and share knowledge
 Enable people to pool their expertise
 Enable synergy
In brief, organizations enable people to be
more productive.
Q-3) How do organizations differ?
Organizations differ in many ways.
1) Ownership
- Private : owned by the private
investors/shareholders.
- Public : owned by the nation
and managed by the
government.
2) Control
- By the owners themselves,
- By the people working on their
behalf or
- Indirectly by the government-
sponsored regulators
3) Activity
- Manufacturing, healthcare,
services (and so on)
4) Profit or non-profit orientation
- business exist to make a profit
- an army, or a charity on the
other hand are not profit
oriented.
5) Size
- small business to
- multinational companies.
6) Legal status
- company, or
- unicorporated body such as
club, association, partnership
and sole trader
7) Sources of finance
- borrowing,
- government funding
- share issues
8) Technology
- high use of technology (eg
computer firms)
- low use (eg. Corner shop)
Q-4) Define a not-for-profit
organization. [MJ10] 3
A not-for-profit organization is an
organization that is being operated to
earn profit and does not distribute its
surplus funds to the owners but
instead uses them to help pursue
goals. Examples of NPOs include
charities, trade unions, clubs and
associations etc.
Q-5) Is the ICAB a not-for-profit
organization? [MJ10] 2
Since ICAB is engaged in the
development and regulation of
accountancy profession in Bangladesh
where there is no profit motive, ICAB
may be termed as a not-for-profit
organization.
Q-6) What does organizations do?
Differences in what organizations do:
Organizations do many different types of work:
1) Agriculture
2) Manufacturing
3) Extractive/raw material
4) Energy
5) Retailing/distribution
6) Intellectual production
7) Service industries
Q-7) What is business?
An organization (however small) that is
oriented towards making a profit for its
owners so as to maximize their wealth and
that can be regarded an entity separate
from its owners.

2. 2
Q-8) What is Stakeholder?
Literally, a person or group of persons who
has a stake in the business. This means that
they have an interest in respect of what the
organization does and how it performs.
Q-9) Types of stake holder and their stake.
STAKE-
HOLDER
Stake holder in a
business
What is stake?
What do they typically expect of
the business?
P
R
I
M
A
R
Y
Shareholder Money invested
A return on their investment so that
their wealth increases:
 steady, growing profits paid out
by the business
 growth in capital value of their
share of the business
S
E
C
O
N
D
A
R
Y
Directors/Managers,
Employee and Trade
union
Livelihood, careers and
reputations
Fair and growing remuneration
Career progression
Safe working environment
Training
Pension
Customers Their customs Products/services that are good
quality and value
Fair terms of trade
Continuity of supply
Suppliers and other
business partners
The items they supply Fair terms of trade
Prompt payment
Continuity of custom
Lenders Money lent A return on their investment
 interest
 repayment of capital
Government and its
agencies
National infrastructure
used by business
The welfare of employees
Tax revenue
Reasonable employment and other
business practices
Steady or rising stream of tax
revenue
The local community
and the public at
large
National infrastructure
used by business
The welfare of employees
Reasonable employment and other
business practices
The natural
environment
The environment shared
by all
Reasonable environmental and
other business practice
Q-10) Suppose you are the finance
manager of XYZ Company Ltd.
Being one of the stakeholders what
might be your stake and what
would be your expectation from
the company? [MQ10]
The stake includes among others livelihoods,
careers and reputations.
My expectations from the company would be:
(i) To have a fair and growing
remuneration
(ii) Career progression
(iii) Good working environment
(iv) Training scope
(v) Pension/ recruitment benefit
Q-11) What expectations would the local
community have of a company
operating a coal-fired power
station within two miles of a
medium-sized town?[IQ1]
Q-12) What are wider areas of social
responsibility in which the
business must take account?
There are wider areas of social responsibility
of which the must take account:

3. 3
 The impact of its operations on the
natural environment
 Its human resource management
policy
 Non-reliance on contract with adverse
political cononations
 Charitable support and activity
 Above-minimum (legal) standards of
workplace health or safety
Q-13) What are the business’s
objectives?
Every business has a hierarchy of objectives,
from its primary objective down to its
supporting objectives. Together these form
multiple objectives.
In fact, however, there is hierarchy of
objectives, with one primary objective and
series of secondary subordinate objective
which should combine to ensure the
achievement of the primary objective.
Primary Objective
Profit
For a business the primary objective is
the financial objective of profit
maximization so as to increase
shareholder wealth.
Q-14) What are the secondary objectives
of business?
Secondary Objectives
- Market Position
- Product Development
- Technology
- Employee and management
Q-15) Is wealth maximization always the
primary objective?
1) Profit Satisficing
2) Revenue maximization
3) Multiple objectives
- Market Standing
- Innovation
- Productivity
- Physical and financial
resources
- Profitability
- Manager performance and
development
- Worker performance and
attitude
- Social responsibility
4) Constraints theory
- Staff relations or
environmental protection
- To satisfy customers
Q-16) What are the multiple objectives of
business?
(a) Market standing,
(b) Innovation,
(c) Productivity,
(d) Physical and financial resources,
(e) Profitability,
(f) Manager performance and
development,
(g) Worker performance and attitude,
(h) Social responsibility,
Q-17) What is Mission?
‘The business’s basic function in society’, is
expressed in terms of how it satisfies its
stakeholders.
Q-18) What are the Elements of mission?
Elements of mission:
1) Purpose
2) Strategy
3) Policies and standards of behavior
4) values
Q-19) What is Goal?
‘The intentions behind decisions or actions’ or
‘a desired end result’. Goals give flesh to the
mission.
Q-20) Define organizational goals.
[MJ10]3
Goals means broad, fairly timeless statement
of what the organization wants to achieve.
Goals are developed in the strategic planning
process and they are usually stated without
reference to a particular time period. The long
term of an organization may be to be an
industry leader or to earn sufficient profit for
the maximization of shareholders’ wealth.
Q-21) Types of goals.
There are two types of goals:
1) Non-operational, qualitative goals
(aims)
2) Operational, quantitative (objectives)

4. 4
Q-22) Most organizations establish
quantifiable operational goals. Give
reasons why non operational goal
goals might be still important.
[IQ2, MJ10]5
Some of the organizational goals are
quantifiable in pure monetary terms like return
on investment, earning per share growth in
turnover etc. But for a healthy and sustainable
future these quantifiable goals are not
themselves enough. Some non quantifiable
goals i.e. employee satisfaction, customer
satisfaction, social image are as important as
quantifiable goals. Therefore, while setting
goals management must consider the
phenomenon and must develop appropriate
system to measure and control both
quantifiable and non-quantifiable goals.
Q-23) Characteristics of operational goal
(objectives):
Objectives should be SMART
S – Specific
M – Measurable
A - Achievable
R - Reasonable
T - Time-bound
Q-24) What are Purposes of setting
operational objectives in a
business?
Objectives should enable management to:
 Implement the mission
 Publicize the direction to managers and
staff,
 Appraise the validity of decisions,
 Assess and control actual performance,
Q-25) What is plan?
Plan is a state what should be done to
achieve the operational objectives.
Q-26) Type of standard
Standard and targets specify a desired
level of performance.
(i) Physical Standard
(ii) Cost Standard
(iii) Quality Standard
Q-27) What is productivity?
This is the quantity of service or
product produced in relation to
resources put in.
Q-28) Niko ltd has revenue of Taka 1,600,000, cost of sales Taka 9,00,000 and expenses of
Taka 350,000.
Calculate the GP margin, net margin, and Mark-up on cost of sale. [IQ3, MJ10] 3
Gross Margin: (1,6,000,00 – 900,000) /1,600,00 X 100% = 43.75%
Net margin: (1,600,000 – 900,000 – 350,000) / 1,600,000 X 100 % = 21.87%
Markup on cost of sale: (1,600,000 - 900,000) / 900,000 X 100 % = 77.78%
Q-29) What is economy?
Economy is the reduction or containment of cost; this can be measured against targets.
Q-30) What is effectiveness?
Effectiveness is the measure of achievement and is assessed by reference to objectives, such
as whether the target profit has been attained.
Q-31) What is efficiency?
Efficiency means being effective at minimum cost or controlling cost without losing operational
effectiveness. Efficiency is therefore a combination of effectiveness and economy.
Q-32) What is Critical Success Factor (CFSs)?
CFS is those product features that are particularly valued by a group of customers and
therefore where the organization must excel to outperform the competition.

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5
Business & Finance
Chapter # 2: Managing a business
Q-1) What is management?
Management is ‘getting things done through other people’.
Q-2) What is governance?
Governance is the system by which businesses are directed and controlled.
Q-3) What is power?
Power is the ability to get thing done.
Q-4) Explain types of power.
French and Raven classified power into six types or sources:
1) Coercive power
2) Reward (or resource) power
3) Legitimate (or position) power
4) Expert power
5) Referent (or personal) power
6) Negative power (Handy)
Q-5) What is authority?
Authority is the right to do something, or to ask someone else to do it and expect it to be done.
Authority is thus another word for position or legitimate power.
Q-6) What is responsibility?
Responsibility is the obligation a person has to fulfill the task s/he has been given.
Q-7) What is accountability?
Accountability is a person’s liability is to be called to account for the fulfillment of task s/he has been
given by persons with legitimate interest in the matter.
Q-8) What is delegation?
The principle of delegation is that a manager may make subordinates responsible for work, but
remains accountable to his her own manager for ensuring that the work is done, that s/he retains
overall responsibility.
Q-9) Discuss types of manger.
Types of manager:
1) Line manager,
2) Staff manager,
3) Functional manager,
4) Project manager,

6. 6
Q-10) Management process.
The management Process:
1) Planning,
2) Organizing,
3) Controlling,
4) Leading,
Q-11) What are the types of managerial role?
Mintzberg (1973) defined what mangers do in terms of three key roles:
(i) Informational role,
(ii) Interpersonal role,
(iii) Decisional role,
Q-12) What do managers do as decisional role?
(i) Allocate resources to operations,
(ii) Handle disturbances,
(iii) Negotiate for that what they need,
(iv) Solve problems that arise,
(v) Act as entrepreneur,
Q-13) What is culture?
Culture is the common assumptions, beliefs that people share, ‘the way we do things round here.’
Q-14) Discuss types of culture.
(i) Internal process culture,
(ii) Rational goal culture,
(iii) Open system culture
(iv) Human relations culture
Q-15) What is marketing?
The set of human activities directed at facilitating consummating exchanges. It therefore
covers the whole range of a business’s activities.
Or
The management process which identifies, anticipates and supplies customer requirement
efficiently and properly.
A customer, who purchases and pays for a good or service.
A consumer, who is the ultimate user of the good or service
Q-16) What is marketing mix?
Marketing mix is the set of controllable marketing variables that a firm blends to produce the response
it wants in the target market (Kotler).
Q-17) What are the components of marketing mix?
(a) Product

7. 7
(b) Price,
(c) Promotion,
(d) Place
Q-18) What is product?
A product is anything that can be offered for attention, acquisition, use or consumption that satisfy a
want or need. It includes physical objects, services, persons, places, organizations and ideas.
Q-19) What are the elements of a product?
There are main three main elements of a product:
(a) Basic (or core) product- a car,
(b) Actual product – a ford Focus,
(c) Augmented product,- 0% finance or warrantee,
Q-20) What are the advantages of direct sell and through intermediaries?
Q-21) What factors to be considered when taking a product from basic to actual and
augmented?
General factors to be considered when taking a product from basic to actual and augmented include
the following:
(a) Quality and reliability,
(b) Packaging,
(c) Branding,
(d) Aesthetics,
(e) Product mix,
(f) Servicing/associated services
Q-22) What is promotion?
Promotion is all about communication, thus informing customers about the product and persuading
them to buy it.
Q-23) How many types of promotion?
There are main four types promotions (communication mix):
(a) Advertising,
(b) Sales promotion,
(c) Public relation,
(d) Personal selling,
Q-24) What are promotion techniques?
There are two types of promotion techniques:
(a) Push
(b) Pull
Q-25) What are the elements of service marketing mix?

8. 8
Marketing services as opposed to physical product, includes consideration of the four Ps of marketing
mix, as well as three added extra Ps:
(a) Product
(b) Price,
(c) Promotion,
(d) Place
(e) People,
(f) Process,
(g) Physical evidence,
Q-26) What is operations (or production) management?
Creating as required the goods or services that is business engaged in supplying to customers.
Q-27) What are the key variables that operation management is concerned with balancing?
(i) External and internal demand for goods and services
(ii) Resources
(iii) Capacity of long term assets of the business
(iv) Inventory level
(v) Performance of the process which creates the goods or services
Q-28) What are certain key decisions in operations?
(i) Forecasting demand far enough in advance,
(ii) Deciding whether products should be made in-house or brought-in from outside(make or buy),
(iii) Deciding whether to operate on a just-in-time basis, or hold inventory,
(iv) Deciding inventory level and managing inventory efficiently,
(v) Managing the supply chain, so inbound deliveries are tied in properly to the production/operations
plan in terms of timing and quality,
(vi) Scheduling resources to meet the plan,
(vii) Ensuring that process used in operation are managed efficiently,
(viii) Ensuring quality,
(ix) Eliminating waste efficiently,
Q-29) What is human resource management?
Human resource management is the creation, development, maintenance of an effective w orkforce,
matching the requirements of the business and responding to the environment.
- Naylor
Q-30) What are the approaches to HRM?
Q-31) What are the functions of human resource management?
Q-32) What is 4Cs model of HRM?
Q-33) What is organizational behavior?
Q-34) What are components of organizational metaphors?

9. 9
Q-35) Discus McGregor’s model: Theory X and Theory Y
Q-36) What is motivation?
Q-37) What is the hierarchy of needs suggested by Abraham Maslow for an individual’s
motivation? [MJ10] 5
The needs start from the bottom of the pyramid and mores upward as the needs of the preceding level
are satisfied.
Q-38) Discuss Herzberg’s content theory: Hygiene factors and Motivating factors
Q-39) What is delegation?
Q-40) What are advantages of delegation?
Q-41) What are the problems caused by poor delegation?
Business & Finance
Chapter # 3: Organizational structure and business form
Self
Actualization
needs
Status/ ego needs
Social needs
Safety needs
Basic/Physiological needs
4
5
3
2
1

10. Q-1) What is organizational structure?
Organizational structure is formed by the grouping of people into departments or sections and the
allocation of responsibility and authority, organizational structure set out how the various functions
(manufacture, marketing, HR, finance ete) are formally arranged.
Q-2) Why an organizational structure?
Organizational structure is a framework intended to:
(i) Link individual in an established network so that authority, responsibility and communications
can be controlled,
(ii) Allocate the task to be done to suitable individuals or groups,
(iii) Give individual or group the authority required to perfom allocated task,
(iv) Co-ordinate objectives and activities of separate group, so that object are ahieved without gap
or overlap in flow of work,
(v) Facilitate the flow of work, information and resources through business
Q-3) What are the building blocks of organizational structure?
Mintzberg suggests that all business can be analyzed into six building block:
(i) Operating core,
(ii) Middle line
(iii) Strategic apex
(iv) Support staff
(v) Technostructure
(vi) Ideology
Q-4) What are the coordinating mechanisms of organizational structure?
Q-5) What are the classical principles of organizational structure?
Henry Fayol an early (“classical”) management theorist suggested that all organization should follow
the 14 principles of hierarchy outline below based on hierarchy of principles, in order to function
effectively and efficiently:
(i) Division of work
(ii) Scalar chain
(iii) Correspondence of authority and responsibility
(iv) Appropriate centralization
(v) Unity of command
(vi) Unity of direction
(vii) Initiative
(viii) Subordination of individual interest
(ix) Discipline
(x) Order
(xi) Stability of personnel
(xii) Equity
(xiii) Remuneration
(xiv) Spirit de corps
Q-6) What are the modern approaches to organizational structure?
Modern management theorists emphasize values such as-

11. 11
(i) Multiskilling
(ii) Flexibility
Q-7) What are the methods of communicating the structure of business?
There are three main methods of communicating the structure of the business.
(i) Organization chart
(ii) Organization manual
(iii) Jobs description
Q-8) How many types of business structure?
Mintzberg’s building blocks and co-coordinating mechanism of organizational structure are generally
combined in one of five different type of business structure:
(i) Simple business structure (entrepreneurial structure)
(ii) Machine bureaucracy structure (functional or bureaucratic structure)
(iii) Professional bureaucracy structure
(iv) Divisionalzed business structure
(v) Adocrachy/innovative business structure
Q-9) What are the features of entrepreneurial structure?
Features of entrepreneurial structure:
- Entrepreneur has specialist knowledge of product/service.
- Entrepreneur has total control over running of business.
Q-10) Where entrepreneurial structure is suitable?
The entrepreneurial structure is most suitable where; there is one product or a group of similar
product.
Q-11) What are the advantages of entrepreneurial structure?
Advantages of entrepreneurial structure:
(i) Quick decision can be made with skill and flair,
(ii) Goal congruence- entrepreneur’s objective perused exclusively
(iii) Flexible/adaptable to change
Q-12) What are the disadvantages of entrepreneurial structure?
Disadvantages of entrepreneurial structure:
(i) Cannot expand beyond a certain size,
(ii) Cannot easily cope with diversification into new product/services about which entrepreneur does
not have specialist skill/knowledge,
(iii) Lack of career structure for lower level of employees
(iv) May be too centralized i.e. too much decision making power retained by the entrepreneur.
Q-13) What are the features of functional (Bureaucratic) structure?
Features of functional (Bureaucratic) structure:

12. 12
(i) Jobs grouped by common features i.e. production and ranked in hierarchy mangers, supervisor
and employees etc.
(ii) Clear line of reporting and authority exist
(iii) Formal procedures and paperwork characterize this type of structure
(iv) The vertical flow of authority can go up and down through the structure from top to bottom
Q-14) Where functional (Bureaucratic) structure is suitable?
Functional (Bureaucratic) structure is suitable:
(i) Single product/closely related product forms
(ii) Relatively stable environment i.e. not one subject to rapid change
(iii) A smaller enterprise
Q-15) What are the advantages of functional (Bureaucratic) structure?
Advantages of functional (Bureaucratic) structure:
(i) Goods career opportunity for employees can progress through the ranks
(ii) Can be efficient as tasks are well-known by individuals
(iii) Exploits specialist functional skill
Q-16) What are the disadvantages of functional (Bureaucratic) structure?
Disadvantages of functional (Bureaucratic) structure:
(i) Structure is very rigid and unsuitable for
- Growth
- Diversification
(ii) Tendency toward non participative authoritative management style as clear level of authority
(iii) Poor decision/ slow decision which have to pass along a line authority
(iv) Functional heads may build empire and interfunctional dispute may result
Q-17) What is divisionalisation?
Q-18) What is span of control in Management? [ND10] 2
Q-19) Narrate the factors influence the span of control in an organization. [ND10] 4

13. Business & Finance
Chapter # 4: Introduction to business strategy
Q-1) What is strategy?
Q-2) What are the levels of strategy? [MJ10]
Strategy can exist at several levels in a business which is as follows:
Q-3) What is corporate strategy? [MJ10]3
Q-4) What strategic business unit (SBU)?
Q-5) What is strategic management? [MJ10]3
Strategic management involves making decisions on the business’s scope and long term
direction and resources allocation. It involves an entire cycle of planning and control at a
strategic level.
Q-6) What are the stages of formal strategic planning? [MQ]
Q-7) What are the benefits of strategic management and planning?
Q-8) What are the drawbacks of strategic management and planning?
Q-9) What are the stages of strategic analysis?
Q-10) Explain why SWOT analysis is important for corporate analysis process. [ND10]
Q-11) What are the stages of strategic choice?
Q-12) What is the business external environment?
Q-13) What are the 4Ss in static environment?
Q-14) What are the 4Ds in dynamic environment?
Q-15) What are threats of new entrants?
Q-16) What are the types of competitor?
Q-17) What are the competitors’ response profiles?
Q-18) What are the primary activities for value chain?
Q-19) What are the secondary activities for value chain?
Q-20) What is product life cycle?
Q-21) What are the stages of product life cycle? 5 [MJ10]
Q-22) What is corporate appraisal?
Q-23) What is gap analysis? [ND10]
Q-24) How does this help management in setting future strategies? [ND10]
Q-25) How gap is minimized?
Q-26) What is market penetration?
Q-27) What is market development?
Q-28) What is product development?
Q-29) What is diversification?
-
Corporate
Business
Functional (Operational)

14. 14
Business & Finance
Chapter # 5: Introduction to risk management
Q-1) What is risk? [MJ10]
Risk is the possible variation on
outcome from what is expected to
happen.
Q-2) What is uncertainty?[MJ10] 3
Uncertainty refers to inability to
predict the outcome from an
activity due to lack of information.
Risk can be measured by assigning
probability whereas uncertainty
cannot be measured.
Q-3) What is opportunity?
Opportunity is the possibility of an event
that will occur and affect positively the
achievement of objectives.
Q-4) What is risk appetite?
Risk appetite is the extent to which a
business is prepared to take on risks in
order to achieve its objectives.
Q-5) What are attitude to risk?
(i) Risk averse
(ii) Risk neutral
(iii) Risk seeking
Q-6) What are the types of risk?
Risk
Business risk
Risk
Business risk
Non-
business risk

15. 15
Q-7) What are the various types of financial risk? [MJ10] 3
The various types of financial risks are:
 Liquidity risk: Unexpected shortage of cash.
 Gearing risk:
 Default risk:
 Credit risk:
 Foreign exchange risk:
 Interest rate risk:
 Market risk:
Q-8) What is operational risk?
The risk of direct or indirect loss resulting from
Q-9) What is risk management?
Q-10) When is risk management necessary?
Q-11) What is involved in the risk management process?
Q-12) How the risk can be avoided or minimized?[MJ10] 4
Risk can be avoided by calculating and avoiding risky projects or ventures whereas
these can be minimized by continuously monitoring the market and environmental
phenomenon. Further, these can also be minimized by adopting various financial
mechanism like swap, hedging, derivatives.
Q-13) What are risk responses and control?
Q-14) What is crisis?
Q-15) What is crisis management? [ND10]
Q-16) What are the types of business crisis? [ND10]
Q-17) How business crisis can be addressed? [ND10]
Q-18) What is disaster?

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17. Business & Finance
Chapter # 6: Introduction to financial information
Q-1) Why is business finance important?
Q-2) Why do business and mangers need financial information?
Business and managers require financial information for:
(i) Planning
(ii) Controlling
(iii) Recording transactions
(iv) Performance measurement
(v) Decision making
Q-3) What are the types of information?
Information can be classified as follows:
(i) Planning information
(ii) Operational information
(iii) Tactical information
(iv) Strategic information
Q-4) What are qualities of good information?
(i) Accurate
(ii) Complete
(iii) Cost-beneficial
(iv) User-targeted
(v) Relevant
(vi) Authoritative
(vii) Timely
(viii) Easy to use
Q-5) What are data and information?
Data are distinct pieces of information in a variety of form – as number or text on pieces of paper, bits
or bytes stored in electronic device, as facts stored in person’s mind.
Q-6) What are internal the sources of information?
Inside the business, data/information comes from the following sources:
(i) The accounting records
(ii) Human resource and payroll records
(iii) Machine logs and computer systems
(iv) Time sheets in service business
(v) Staffs
Q-7) What are external sources of information?
Sometimes additional information external information is required, requiring as active search outside
the business. The following sources may be identified.

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18
(i) The internet
(ii) The government
(iii) Advice or information bureaux, such as Reuters or Bloomberg
(iv) Consultancies of all sorts
(v) Newspapers and magazines publishers
(vi) Specific reference works which are used in a particular line of work
(vii) Libraries and information services
(viii) The systems of other business via electronic data interchanges
Q-8) How is data/information processed?
Data once collected is converted into information for communicating more widely within the business.
Q-9) What are criteria to be effective information processing?
To be effective information processing should meet the following CATIVA criteria:
(i) Completeness
(ii) Accuracy
(iii) Timeliness
(iv) Inalterability
(v) Verifiability
(vi) Assess ability
Q-10) What is system?
A system is a set of interacting components that operate together to accomplish a purpose.
Q-11) What is business system?
A business system is a collection of people, machine, methods organized to accomplish a set of
specific functions.
Q-12) What is information system (IS)?
Information system is all system and procedures involved in the collection, storage, production and
distribute of information.
Q-13) What is information technology (IT)?
Information technology is the equipments used to capture, store, transmits or present information. IT
provides a large part of the information system infrastructure.
Q-14) What is transaction processing system (TPS)?
Transaction processing system is a system which performs, records and process routine transactions.
Q-15) What is management information system (MIS)?[ND10] 2
Q-16) Why is information security important?

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Q-17) What is security?
Security is the protection of data from accidental or deliberate threats which might cause unauthorized
modification, disclosure or destruction of data, and the protection of information system from the
degradation or non-availability of services.
Q-18) What are the aspects of security of information?
(i) Availability
(ii) Confidentiality
(iii) Integrity
(iv) Authenticity
(v) Non-repudiation
(vi) Authorization
Q-19) What are the physical controls?
Q-20) How security controls help?
Q-21) What is financial information used for?
All users use financial information to make economic decisions such as those to:
(i) Decide when to buy, hold or sell shares on the basis of their risk and return.
(ii) Assess how effectively the business’s management has looked after its affairs and decide
whether to replace or reappoint them.
(iii) Assess a business’s ability to provide benefits to its employees
(iv) Assess security for amount lent to the business
Q-22) Who uses financial information?
(i) Present and potential investors
(ii) Employees
(iii) Customers
(iv) Suppliers and other business partners
(v) Lenders
(vi) Government and its agencies
(vii) The public and community representative
Q-23) When is financial information useful?
The framework states that financial information is useful to users when it:
(i) Helps them to make economic decisions,
(ii) Shows the results of management’s stewardship of the resources entrusted to them
Q-24) What are the underlying assumptions in financial information?
Financial information to meet the objectives must be prepared on the basis of two underlying
assumptions:

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(i) The accrual basis of accounting
(ii) The business is going concern
Q-25) What are the qualitative characteristics of financial information?
The attributes that make information provided in financial statements useful to users:
(i) Understandability
(ii) Relevance
(iii) Reliability
(iv) Comparability
Q-26) When information will be reliable?
Information is reliable if it:
(i) Is free from material error
(ii) Is free from bias i.e. neutral
(iii) Can be depended on to be faithful presentation
(iv) Is presented in accordance with its commercial substance rather than its strict legal from
(v) Is complete within the bounds of materiality and costs
(vi) Is prepared with prudence, that is degree of caution is exercised when including items
for which estimates are needed and conditions are uncertain.
Q-27) What are limitations of financial information in meeting users’ needs?
(i) Conventionalized representation
(ii) Backward-looking
(iii) Omission of non-financial information
Q-28) What are the other sources of information?
There are other sources of information available to at least some users of the basic financial
statements:
(i) Internal management information
(ii) Bank
(iii) Potential investor
(iv) Suppliers
(v) Credit reference agencies
(vi) Brochures and publicity materials
(vii) Brokers’ report
(viii) Press reports and other media coverage
Q-29) What are the effects of poor financial information?
Financial is poor it does not meet the needs of users and display the qualitative characteristics.
The effect of poor financial information is:
(i) To undermine the integrity of financial market
(ii) To fail to serve the public interest
Q-30)

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Business & Finance
Chapter # 7: The business finance function
Q-1) What are the functions of finance?
(i) Recording financial transactions
(ii) Management accounting
(iii) Financial reporting
(iv) Treasury management
Q-2) What is recording of financial
recording?
Recording of financial transactions is ensuring
that the business has an accurate record of its
revenue, expenses, assets, liabilities and
capital.
Q-3) What are the functions of financial
recording?
(i) Recording financial transactions in
the books of original entry
(ii) Entering summaries of transaction in
the permanent record from books of
original entry
(iii) Ensuring that resources are properly
controlled
Q-4) What is management accounting?
Management accounting is providing
information to assist mangers and internal
users in their decision making, performance
measurement, planning and control activities.
Q-5) What are the functions of
management accounting?
(i) Preparing financial for internal users
(ii) Identifying or determining the unit
cost of goods or services produced
by the business, including
classification into fixed and variable
costs or direct and indirect costs.
(iii) Planning ahead by preparing
forecasts and budgets.
(iv) Assisting management decision
making.
(v) Preparing performance measures and
identifying the reasons for good and
bad performance, including variance
analysis.
(vi) Analyzing capital investment
decisions
(vii) Determining sale and transfer prices.
Q-6) What is financial reporting?
Financial reporting is providing information
about a business to users that is useful to
them in making economic decisions and for
assessing the stewardship of the business
management.
Q-7) What are the functions of financial
reporting?
(i) Preparing financial information
including financial statements for
external users to enhance good
corporate governance.
(ii) Tax reporting to National Board of
Revenue
(iii) Regulatory reporting
Q-8) What is treasury management?
Treasury management is the managing the
fund of a business namely, cash and other
working capital items plus long term
investment, short-term and long-term debt
and equity finance.
Q-9) What are the functions of treasury
management?
(i) Preparing and monitoring cash
budget
(ii) Managing surplus and deficit in cash
balances
(iii) Managing working capital from day
to day so as to optimize cash flow
including inventory, receivables and
payables
(iv) Analyzing short-term and long-term
financing decisions
(v) Managing investment
(vi) Managing foreign exchange
(vii) Managing financial risk
(viii) Raising long-term finance

22. 22
Q-10) How does the finance function
support the pursuit of business
objectives?
(i) By providing information to measure
performance and support decisions
(ii) By ensuring there is finance
available for the business’s activities
Q-11) What is cost accounting?
Cost accounting is gathering information about
costs and attaching it each unit of output;
establishing budgets and standards, actual
costs of operations, process, activities or
products; and analyzing variance and
profitability.
Q-12) Cost classification.
Q-13) What is cost center?
Cost centre is a function or location for which
cost are ascertained.
Q-14) What is direct cost?
A direct cost is a cost that can be traced full to
the product, service, or department that being
costed.
Q-15) What is indirect cost?
An indirect cost (or overhead) is a cost of
material, labor or expenses that is incurred in
the course of making a product, providing
service or running a department, but which
cannot be traced directly and in full to the
product, service or department.
Q-16) What is fixed cost?
A cost incurred for an accounting period that is
unaffected by fluctuations in the level of
activity.
Q-17) What is variable cost?
A cost tat varies with level of activity.
Q-18) What is semi-variable cost?
Semi-variable cost is a cost containing both
fixed and variable components and thus partly
affected by a change in the level of activity.
Q-19) What is controllable cost?
Controllable cost is a cost which can be
influenced by management decisions and
actions.
Q-20) What is uncontrollable cost?
Uncontrollable cost is a cost that cannot be
affected by management within a given time
span.
Q-21) What is marginal costing?
Marginal costing is including only the variable
costs in unit cost when making decisions or
valuing inventory.
Q-22) What do you understand by Cost
Volume Profit (CVP) analysis? [ND10]5
Q-23) What is breakeven point?
Breakeven point is the level of production and
sales at which after deducting fixed cost and
variable cost from sales revenue, neither a
profit nor a loss.
Q-24) You are advised to calculate the break
even Point from the following data:
Fixed cost Taka
Monthly Lease Rent 100,000
Insurance 50,000
Total Monthly Costs 150,000
Variable costs:
Materials 3,000
Labor 4,000
Total Variable Costs 7,000
Selling price 10,000
[ND10] 5
Q-25) What factors affect demand?
A. Within the control of the business:
(i) Price
(ii) Marketing research
(iii) Product research and development

23. 23
(iv) Advertising
(v) Sales promotions
(vi) Training and organization of sales
force
(vii) Effectiveness of distribution
(viii) After-sales service
(ix) Granting of credit to customers
B. Outside the control of the business:
(i) Price of substitutes goods
(ii) Price of complementary goods
(iii) Consumers’ income
(iv) Taste and fashion
Q-26) What influences the business’s
pricing policy?
(i) Costs
(ii) Competitors
(iii) Customers
(iv) Corporate objectives
Q-27) What are the objectives of pricing?
Possible pricing objectives are:
(i) To maximize profits
(ii) To achieve a target return on investment
(iii) To achieve a target revenue
(iv) To achieve a target market share
(v) To match the competition, rather than
leading the market, where the market is
price sensitive.
Q-28) What is budget?
Budget is a plan expressed in monetary term.
Q-29) What are the stages of budgetary
process:
(i) Establish objectives
(ii) Identify potential strategies
(iii) Evaluate options and select course of
actions
(iv) Prepares plans and standards
(v) Implement the long term plan via
budgets
(vi) Monitor actual outcomes and respond to
deviations
Q-30) Types of budgeting.
(i) Incremental budgeting
(ii) Zero-based budgeting
(iii) Flexible budgeting
(iv) Rolling budgeting
Q-31) What are the purposes of budgets?
(i) Guiding managers on how to achieve
objectives
(ii) Allocating resources
(iii) Setting targets and allocating
responsibility
(iv) Helping to Co-ordinate activities
(v) Communicating plans
(vi) Enabling Control
(vii) Helping to motivate employees
(viii) Helping to evaluate performance
Q-32) What is strategic management
accounting?
Strategic management accounting is providing
and analyzing financial information on the
business’s products market and competitors’
costs and cost structure and monitoring the
business strategies and those of its
competitors in these markets over a number of
periods.
Strategic management accounting therefore
extends the inter focus of traditional
management accounting to include external
information about:
(i) Competitors
(ii) The business’s strategic positions
(iii) How to gain competitive advantages by
decreasing costs and or enhancing the
product differentiation of the business’s
products
Q-33) What makes information valuable?
(i) Its sources
(ii) Ease of assimilation
(iii) Accessibility
Q-34) What is internal control?
Internal control is a process affected by an
entity’s board of directors, management and
other personnel to provide reasonable
assurance regarding the achievement of
objectives in the following categories:
(i) Effectiveness and efficiency of operations
(ii) Reliability of financial reporting
(iii) Compliance with applicable laws and
regulations

24. 24
Q-35) What are the components of
effective internal control?
(i) Control environment
(ii) Risk assessment
(iii) Control activities
(iv) Information and communication
(v) Monitoring
Q-36) What are the control activities?
Control activities are the policies and
procedures that help ensure management
directives are carried out.
Control activities occur throughout the
business, at all levels and in all functions not
just the finance functions. They include:
(i) Approval
(ii) Authorization
(iii) Verification
(iv) Reconciliation
(v) Review of operating performance
(vi) Security of assets
(vii) Segregation of duties

25. 25
Business & Finance
Chapter # 8: Measuring performance
Q-1) Why do we measure business’s
performance?
Performance measures are calculated to assess
the business’s:
(i) productivity
(ii) effectiveness
(iii) efficiency
Q-2) Who uses performance measures?
(i) Present and potential investors
(ii) Employees
(iii) Lenders
(iv) Suppliers and other trade payables
(v) Customers
(vi) Governments and their agencies
(vii) The public
(viii) Managers
Q-3) What are the types of performance
measure?
There are two types of performance measure:
(i) Qualitative measures
(ii) Quantitative measures
Q-4) What aspects of performance are
measured?
The management accounting section is
engaged in measuring the following aspects of
business performance as part of its support for
operational planning and control:
(i) Efficient use of labor and materials
(ii) Efficient buying of materials
(iii) Control of labor rates of pay and
materials prices
(iv) Labor and asset productivity versus idle
time
(v) Effectiveness of planning and control
mechanism
The financial reporting section is likely to be
responsible for producing financial performance
measures on the following key areas:
(i) Profitability
(ii) Liquidity and solvency
(iii) Efficiency and working capital
management
(iv) Whether the business represents a
worthile investment
Q-5) How can we get the following?
(i) Inventory turnover ratio,
(ii) Return on capital employed,
(iii) Current ratio,
(iv) Quick ratio,
(v) Debt equity ratio,
(vi) Gearing ratio,
(vii) Interest cover,
(viii) Asset turnover
[MJ10] 10
(i) Inventory turnover ratio,
=
Cost of sale
Average inventory
(ii) Return on capital employed,
=
PBIT
Capital employed
(iii) Current ratio,
=
Current Assets
Current Liabilities
(iv) Quick ratio,
=
Current Assets less inventory
Current liabilities
(v) Debt equity ratio,
=
Debt
Equity
(vi) Gearing ratio,
=
Non current liabilities
Shareholders’ equity + Non
current liabilities
(vii) Interest cover,
=
PBIT
Finance cost of short and
long term borrowings
(viii)Asset turnover
=
Revenue
Asset employed

26. 26
Q-6) Eron Limited has the following data in their financial statements of 2009:
Ordinary shares @ Tk. 100 per Tk. 150,000
Dividend Tk. 45,000
Market price per share Tk. 200
Earning per share Tk. 17
From the above information please calculate the following:
(i) Dividend per share,
(ii) Dividend cover,
(iii) P/E ratio,
(iv) Dividend yield
[MJ10]
Q-7) Following are the financial statements of XYZ Limited:
From the above please calculate the following:
Current ratio, b) Quick Ratio, c) Asset Turnover Ratio, d) ROCE, e) Debt Equity Ratio, f)
Gearing Ratio, g) P/E Ratio, h) Dividend Yield, i) Dividend Cover, j) Interest cover. [ND10] 10
Q-8) Write short notes on Balance
Scorecard. [ND10] 2
Q-9)

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27

Return on
capital
employed
(ROCE) =
PBIT
X100
*Capital
employed
* Capital employed = Equity + Long
term liabilities
or
= Total assets –
current liabilities
 Gross profit
margin =
Gross
profit
X
100
Revenue
 Net margin =
PBIT
X 100
Revenue
 Current ratio =
Current asset
Current liabilities
 Quick ratio
=
Current asset -
Inventory
Current liabilities
 Debt
ratio =
Total current
liabilities + Non-
current liabilities
X
100
Total asset
 Gearing
ratio =
Non-current
liabilities
X
100
Shareholder’s
equity +Non-
current liabilities
 Interest
cover =
PBIT
Finance Cost (on short
and long term
borrowings)
 Asset
turnover =
Revenue
Capital employed (
Total assets – current
liabilities)
 Inventory
turnover =
Cost of sale
Average
inventory

Inventory
turnover
period (in
days) =
Average
inventory X
365Cost of
sale
 Receivable
collectionperiod
Average
receivable
X
365
(in days) = Annual
sales
revenue

Payable
payment
period (in
days) =
Average
payable
X
365
Annual
purchase/
Cost of sale
 Dividend per
share =
Total dividend
Number of
shares eligible
 Dividend cover
=
Earning per
share
Dividend per
share
 Dividend
yield =
Dividend per
share X
100Current share
price

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28
Business & Finance
Chapter # 9: Working Capital and
treasury Management
Q-1) What is working capital?
Net working capital is made up of current
assets less current liabilities.
Receivable + Inventory + Cash – Payables
Investment in working capital is needed to ‘oil
the wheels’ of business.
Q-2) What is trade-off?
It is essential to consider working capital as a
whole and how the components all fit
together. The management is concerned with
liquidity position of the company, so the main
aim is to turn the cash round as quickly as
possible whilst ensuring that profitability is
not thereby undermined: it is a trade-off.
Q-3) By looking of what components
of working capital balance
liquidity and profitability?
(i) Cash
(ii) Receivables
(iii) Inventory
(iv) Payable
Q-4) Discuss types of company.
(i) Aggressive company
(ii) Average company
(iii) Defensive company
Q-5) What is cash operating cycle?
[MJ10] 3
The cash operating cycle focuses on the
length of time between a business paying out
cash for its inputs and receiving cash for
goods sold.
Q-6) What are the limitations of
working capital performance
measures?
(i) Balance sheet values at a particular
point in time, may not be typical.
(ii) Balances used for seasonal business
will not represent average levels, e.g.
Christmas tree manufacturer.
(iii) Such measures concern the past not
the future.
Therefore, measures should not be considered
in isolation. Trends and industry averages are
important.
Q-7) What are the solutions to
liquidity problems?
Or how length of cash operating
cycle is reduced?
The aims must be to reduce the length of cash
operating cycle by:
(i) Reducing inventory holding period.
(ii) Reducing production period
(iii) Reducing customer’s credit period and
tightening up of on cash collection
(iv) Extending the period of credit taken
from suppliers
Q-8) Luxury paints Ltd. has the following figures for the coming year:
Sales Taka 3,600,000
Average receivables Taka 306,000
Gross margin 25%
Inventories
Finished goods Taka 200,000
Work-in-process Taka 350,000
Raw materials Taka 150,000
Average payables Taka 130,000
Inventory levels are constant.
Raw material represents 60% of total production cost.
Calculate the length of cash operating cycle.
[MJ10] 7
Q-9) Following are opening and closing data of Apon Aloy Ltd.’s balance sheet and income
statement for the year 2009:
Calculate approximate length of cash operating cycle.

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29
1 Jan.
Taka
31 Dec
Taka
Accounts Receivable 8,00,000 9,00,000
Accounts Payable 2,00,000 2,50,000
Credit Sales 10,000,000
Cost of Goods Sold 6,000,000
[ND10] 10
Q-10) Why hold inventory?
Inventory is an idle resource costing the
business money, so there must be good
reasons for holding it.
Reasons for holding inventory:
(i) To meet demand by acting as a buffer
in times of unusually high
consumption, to reduce the risk of
stockouts or where suppliers delivery
times (lead times) are uncertain.
(ii) To ensure continuity of production.
(iii) To take advantage of quantity
discount by ordering more at a time.
(iv) To buy in ahead of a shortage or
ahead of a price rise.
(v) For technical reasons such as
maturing whisky and keeping oil in
pipe lines.
(vi) To reduce ordering costs by ordering
more items on fewer occasions.
(vii) Because of seasonal demand or
supply.
(viii) Because suppliers insist minimum
ordering quantity.
(ix) Because special promotions are being
offered.
Q-11) What are the costs associated
with holding inventory?
(i) Purchase price.
(ii) Holding costs
- opportunity cost of capital tied up
- cost of insurance
- risk of deterioration
- cost of the warehousing function
- cost of store administration
(iii) Re-order cost
- transport costs
- clerical cost
- batch set up cost for goods
produced internally
(iv) Shortage costs
- production stoppage caused by
lack of raw material
- stockout costs for finished goods
- emergency re-order cost
Q-12) What are the inventory control
systems?
There is a wide range of inventory control
systems.
(i) Re-order level system
(ii) Periodic review system
(iii) ABC system
(iv) Economic Order Quantity System
(v) Just-in-time manufacturing system
(vi) Perpetual method
(vii) Other ways to manage inventory
Q-13) Write short notes on Perpetual
inventory methods. [ND10] 2
Q-14) What is economic Order
Quantity (EOQ)? [MJ10]
The EOQ model for inventory control
approaches mathematically problems of when
to order inventory and how much to order.
The formula is
EOQ = square Root of (2cd/h)
Where c = cost of placing one order
d = estimated usages of the inventory
items over a particular period
h = cost of holding one unit of
inventory for that period
Q-15) Calculate EOQ from the following information:
Reagent cost Taka 100 per Litre. 2000 Ltr. are to be used per annum and holding cost per
ltr. Taka 5. Each order placed costs Taka 200 against overhead. [MJ10] 4
Q-16) What are the advantages of trade credit?
(i) It is convenient and informal
(ii) It can be used by business which do not qualify for credit from a financial institution
(iii) It does not prevent advantage being taken of settlement discount
(iv) Trade credit can represent virtual subsidy or sales promotion device offered by the seller
(v) It can be used to overcome very short term unexpected cash flows crises

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Q-17) What is the ideal level of trade receivable?
Q-18) What are the bases of credit rating?
(i) An assessment of ability to pay the liabilities
(ii) An assessment of financial statement particularly for major customer
(iii) The use of credit rating agencies, who rate the customers according to a number of factors
related to its ability to pay
(iv) An analysis of on going trading experience with each customer
(v) The practice in some industries whereby credit managers liaise to exchange information with
other business
(vi) Credit limits on how much can be outstanding on a customer’s account at any time
(vii) Trade and bank references, although these may be so bland as to be a limited value, these
references may provide valuable corroboration of other source of information.
Q-19) How financing through trade receivable?
Receivables are an asset, and son can be sold like any other assets by means of discounting or
factoring.
(i) Invoice discounting
(ii) Receivable factoring
- accounting and collection
- credit control
- finance against sale
Q-20) Write short notes on Basic trade-off: cost of holding vs. cost of running out of cash.
[ND10] 2
Q-21) What are the influences on cash balances?
There are a number of motives underlying how much a business would to hold as cash:
(i) Transactions motive
(ii) Finance motive
(iii) Precautionary motive
(iv) Investment motive
Q-22) What are the aims of good cash management?
The primary aim of cash management is to have the right amount of cash at the right time. This
involves:
(i) Accurate cash budgeting/forecasting so that shortfall and surplus can be anticipated
(ii) Planning short-term finance when necessary
(iii) Planning investment of surplus when necessary
(iv) Cost-effective cash transmission
Q-23) How short term finance is managed?
(i) Receivable factoring and invoice discounting
(ii) Bank overdraft
(iii) Short-term bank loans
(iv) Operating leases
Q-24) What are the actions inrespect of surplus funds?
Surplus funds can be invested in various financial products:
(i) Treasury bills
(ii) Deposits
(iii) Gifts
(iv) Bonds
(v) Equities
Write short notes on Fiduciary relationship. [ND10]

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31
Business & Finance
Chapter # 10: The professional accountant
Q-1) What is professional?
Professional is a person who ‘profess’ to have skill resulting from a coherent course of study and
training based on professional values, who continues to develop and enhance those skills by
experience and continuing professional education.
Q-2) What is the accountancy profession?
Accountancy profession is the profession concerned with the measurement, disclosure or provision of
assurance about financial information that helps mangers, investors, tax authorities, and other
decision makers make resource allocation decision.
Thus at the heart of the accountancy profession are:
(a) financial reporting
(b) assurance
Q-3) What is financial reporting?
Financial reporting is the provision of financial information about an entity to external users that is
useful to them in making economic decisions and for assessing the stewardship of the entity’s
management.
Q-4) What is assurance?
Assurance is the expression of an opinion or conclusion by a professional accountant in public practice
which is designed to enhance the degree of intended users.
Q-5) Why is the accountancy profession important?
The work of the accountancy profession is most important and relevant therefore to:
(i) The effective working of capital market
(ii) The public interest
Q-6) What is public interest?
Public interest is the well-being of the community of people and institutions the professional
accountant serves, including clients, lenders, governments, employers, employees, investors, the
business and financial community and others who rely on the work of professional accountants.
Q-7) Why should the accountancy profession act in the public interest?
Q-8) What does the public interest require of the professional accountant? [MQ10]
A professional accountant should show:
(i) Professional responsibility (integrity)
(ii) Technical competence (expertise)
Q-9) What are the fundamental ethical principles used for professional responsibility?
(i) Integrity
(ii) Objectivity

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32
(iii) Professional competence and due care
(iv) Confidentiality
(v) Professional behaviour
Q-10) What are the works of accountancy profession?
There are three basic aspects of the professional accountant’s work which should be appreciated by
any accountancy trainee:
(i) Maintaining control and safeguarding assets
(ii) Financial management
(iii) Financial reporting
Q-11) What is integrity?
Integrity refers that a professional accountant should be straightforward and honest in all professional
and business relationships.
A professional accountant behaves with integrity when he or she ie:
(i) Straightforward
(ii) Honest
(iii) Fair
(iv) Truthful
Q-12) What is objectivity?
Objectivity is the state of mind which has regard to all considerations relevant to the task in hand but
not other.
Being objective means:
(i) Independent of mind
(ii) Not allowing professional and business judgment to be overridden by:
- bias
- conflicts of interest
- undue influence of other
Q-13) What is professional competence and due care?
When providing professional services ‘professional competence and due care’ therefore mean:
(i) Having appropriate professional knowledge and skill
(ii) Exercising sound and independent judgement
(iii) Acting diligently, that is
- carefully
- thoroughly
- on a timely basis
(iv) Acting in accordance with technical and professional standard
(v) Distinguishing clearly between an expression of opinion and assertion of fact
Q-14) What is professional behaviour?
Behaving professionally means:
(i) Complying with relevant laws and regulations
(ii) Avoiding any action that discredit the profession
(iii) Conducting onself with,
- courtesy
- considerations
Q-15) What are threats to professional principles?

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(i) Self-interest threats
(ii) Self-review threats
(iii) Advocacy threats
(iv) Familiarity threats
(v) Intimidation threats
Q-16) What ate safeguard against threats?
Safeguards that may eliminate or reduce such threats to an acceptable level fall into two board
categories:
(a) Safeguards created by the profession, legislation or regulation
(b) Safeguards in the work of environment
Safeguards created by the profession, legislation or regulation include, but not restricted:
(i) Education, training and experience requirement for entry into the profession,
(ii) Continuing professional education requirements
(iii) Corporate governance regulations
(iv) Professional standards
(v) Professional or regulatory monitoring and disciplinary procedure
(vi) External review by legally empowered third party of the reports, returns, communication or
information produced by a professional accountant
Q-17) What are the accounting principles?
(i) Accrual basis
(ii) Going concern
(iii) Double entry bookkeeping
(iv) Faithful presentation
(v) Substance over form
(vi) Materially
(vii) Neutrality
(viii) Prudence
(ix) Timeliness
(x) Cost versus benefit
(xi) Offsetting
Q-18) What is the purpose of having accounting standard? [MQ10]
The basic purpose of accoutering standards is to identify proper accounting practices for the befit of
preparers, auditors and users of financial statements. Accounting standards create common
understanding between users and prepares of financial statements on how particular items should be
treated, so financial statement are excepted to comply with applicable accounting standards other
than in rare, exceptional cases.
Q-19) How far do the professional accountant’s responsibilities go?

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34
Business & Finance
Chapter # 11: Structure and regulation of accountancy profession
Q-01) Why is regulation of professions necessary?[MQ10]
Q-20) What do you think should be the aims of regulation of the accountancy profession?
Regulation of accountancy profession is necessary to-
(i) Protect the interest of the stakeholders of the business and of the public;
(ii) Facilitate competition and reduce barriers to trade;
(iii) Ensure technical, educational and ethical standard;
(iv) Enforce the standards required firmly and fairly;
(v) Be transparent in its setting and enforcement to maintain confidence that the public interest is
being safeguard.
Q-21) What methods of regulation there?
Regulation can be:
(i) By government directly via legislation
(ii) By separate agencies established by government (delegated legislation)
(iii) By profession/industry itself (self-regulation)
(iv) By a combination of methods
Q-22) Does self-regulation work?
Q-23) What does an ‘oversight mechanism’ mean?
Q-24) How is the accountancy profession regulated?
Following lengthy debate, the regulatory regime that now exists for the accountancy profession
involves:
(i) The government
(ii) The profession (self-regulation)
(iii) An oversight mechanism
Q-25) What are the roles of ICAB?
In relation to its membership ICAB has direct responsibility for:
(i) Entry and education requirement
(ii) Eligibility to engage in public practice
(iii) Eligibility for the performance of reserved activity under statutory powers delegated by the
governments
(iv) Professional conduct requirements
(v) Dealing with professional misconduct by its member.
Q-26) What is the ICAB complaints and disciplinary procedure?
Q-27) One of your client s is planning to complain to the ICAB about work carried by your
firm and the prices it has charged. On what grounds may the client make a
complaint to the ICAB?
Complaints may be on the grounds that the firm is in breach of an ICAB regulation, has departed from
guidance or has brought the ICAB into disrepute.

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35
Business & Finance
Chapter # 12: Governance and ethics
Q-28) What is Governance?
Governance is the system by which business
are directed and controlled. It is concerned with
exercising overall control to ensure that the
objectives of the company are achieved in an
acceptable manner.
Q-29) What is Corporate Governance? [ND10]
3
Q-30) What are the objectives of corporate
governance? [ND10] 3
Q-31) What are the stakeholders’
governance needs?
(i) For their interests and expectations to
be reflected in the company’s
objectives,
(ii) For the scope for conflicts to be
reduced
(iii) For the company to adhere to good
practice in corporate governance.
(iv) For the company to adhere good
business ethics
Q-32) What are the symptoms of a
serious conflict of interest?
(i) Financial collapse without warning
(ii) Directors trying to disguise the true
financial performance of the company
from shareholders
(iii) Disputes over directors’ remuneration
(iv) Decisions taken by the board of
directors to satisfy their own wish for
power and rewards
Q-33) What is meant by ‘good practice’ in
corporate governance?
Good practice in corporate governance is
concerned with disclosure of information;
judging directors’ performance and
stewardship; reducing the potential for conflict;
reconciling the interests of shareholders and
directors.
Q-34) What are the key elements towards
good corporate governance?
The five key elements which support the drives
toward good corporate governance are as
follows:
(i) The board of directors
- Executive directors
- Non-executive directors
- Committees of the board of
directors as a whole
- Senior management
(ii) Shareholders
(iii) External auditors
(iv) Internal auditors
Q-35) What are the functions of financial
system?
The financial system in economy facilitates the
movement of funds from those who have an
excess of hem and to those who need them.
This means it has two main functions:
(i) Facilitation of lending and borrowing
(ii) Transmission of money
Q-36) What are the financial systems?
There are two broad types of financial system:
(i) Bank-based system
(ii) Market-based system
Q-37) What factors determine the
financial system?
Whether a system favours banks or the
markets is determined by how the factors are
balanced, namely:
(i) How households prefer to hold their
assets,
(ii) The of dominance of the system by
financial intermediaries and therefore
by indirect as opposed to direct
investment,
(iii) How business are financed, that is the
balance of retained earnings, debt and
equity,
Q-38) What are the characteristics of
bank-based financial system?
(i) Little risk
(ii) Less access to investment in physical
assets
(iii) Institutional shareholders are influential
(iv) Comparatively more government
regulation
(v) Banks are highly concentrated and
integrated in terms providing both
banking and non-banking services,

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36
(vi) Bank lending is the most important
source of business finance
(vii) Bank and business are highly integrated
(viii) Markets are volatile and speculative
Q-39) What are the characteristics of
market-based financial system?
(i) More risk
(ii) Greater access to investment in
physical assets
(iii) Markets are more important than bank
for long term finance
(iv) Comparatively unregulated
(v) Banks are more fragmented
(vi) Banks have less close relationship with
the business they lend to
Q-40) In the UK households hold
proportionately of their assets in
the form of equity than in
Bangladesh. What does this say
about UK households’ attitude to
risk? [IQ]
Equity is a more risky form of investment that
cash and cash equivalents so it would appear
that the UK households are less risk averse
than Japanese ones.
Q-41) What is governance structure?
Governance structure is a set of legal or
regulatory methods put in place in order to
ensure effective corporate governance.
There are two basic governance structures:
(i) Statue
(ii) Code of practice
Q-42) What are the roles of the
Bangladesh Bank in promoting
good governance?
The Bangladesh Bank is responsible for
promoting good governance. It aims to do so
by
(i) Maintaining ‘The Financial Act. 1993’
and promoting its widespread
application and enforcement.
(ii) Ensuring that related guideline, such
as that on internal control is current
and relevant.
(iii) Influencing SEC, BEI and ICAB
corporate governance development.
(iv) Helping to promote board room
professionalism and diversity.
(v) Encouraging shareholder engagement.
Q-43) What is ethics?
Q-44) What is an ethical culture?
Q-45) What is business ethics?
Q-46) What are business ethics?
Q-47) How can an ethical culture be
promoted?
Q-48) In what areas of a business would you
say there were greatest pressures not
to behave ethically, and from what
source does this pressure come? [IQ]
Q-49) What is social responsibility?
Q-50) What is code of ethics?
Q-51) What is agency theory?
Q-52) What are the functions of codes of
ethics?
Q-53) What are the policies and procedure to
support ethical behaviour?

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Business & Finance
Chapter # 14: The Economic Environment
of Business and Finance
Q-1) What is market mechanism?
Market mechanism is the interaction of demand
and supply for a particular item.
Q-2) What is market?
Market is a situation in which potential buyers
and sellers (suppliers) of an item or ‘good’
come together for the purpose of exchange.
Q-3) What is demand?
Demand is the quantity of good that potential
purchasers would buy or attempt to buy, if the
price of the good were at a certain level.
Q-4) What factors determine demand?
(i) Price
(ii) Price of substitute
(iii) Interrelated goods
(iv) Income level
(v) Fashion and expectation
(vi) Income distribution
Q-5) What are causes of sifting of a
demand curve?
(i) A rise in household income
(ii) A rise in price of substitute
(iii) A fall in price of complements
(iv) A positive change in taste towards this
goods
(v) An expected rise in the price of the
goods
Q-6) What is supply?
Supply is the quantity of goods that a supplier
or would be supplier want to produce at a
certain price at a given time.
Q-7) What factors influence supply?
(i) The Price obtainable from good
(ii) The price of other goods
(iii) The price of related goods
(iv) Cost of making the goods
(v) Changes in technology
(vi) Other factors, such as changes in
weather in the case of agricultural
goods, natural disasters or industrial
disruption.
Q-8) What is equilibrium price?
Equilibrium price is the price of good at the
volume demanded by consumers and the
volume business are wiling to supply are the
same.
Q-9) What is elasticity?
Elasticity is the extent of change in demand
and/or supply given a change in price.
Q-10) What are the types of elasticity?
(i) Price elasticity of demand
(ii) Income elasticity of demand
(iii) Cross elasticity
(iv) Price elasticity of supply
Q-11) What is price elasticity of demand?
Price elasticity of demand (PED) is a measure
of the extent of change in demand for a good in
response change in its price.
It is measured:
Q-12) What is elastic demand? [MQ10]
Where demand is elastic, demand changes by a
larger percentage than the percentage change
in price.
Q-13) What is inelastic demand? [MQ10]
Where demand is inelastic, demand changes by
smaller percentage than the percentage change
in price.
Q-14) What are influencing factors of
price elasticity of demand for a
good?
(i) Availability of substitute
(ii) The time horizon
(iii) Competitors’ pricing
(iv) Luxuries and necessities
(v)
(vi) Percentage of income spent on a good
(vii) Habit-forming goods
Q-15) The price of a good is CU 1.20 per unit and annual demand is 80,000 units. Market research
indicates that an increase in price of 10 pence per unit will result in fall in annual demand of
70,000 units. Calculate the elasticity of demand when the price is CU 1.20.

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38
Q-16) Product A currently sells for CU5, and demand at this price is 1,700 units. If the price
fell to Cu4.60, demand would increase to 2,000 units.
Product B currently sells for CU8 and demand at this price is 9,500 units. If the price
fell to CU7.50, demand would increase to 10,000 units.
In each of these cases, calculate:
(a) The price elasticity of demand (PED) for the price change given; and [ND10] 5
(b) The effect on total revenue, if demand is met at both the old and the new prices, of the
change in price. [ND10] 5

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39
Q-17) What is income elasticity of
demand?
Income elasticity of demand is an indication of
the responsiveness of demand to change in
household incomes.
Q-18) What is cross elasticity?
Cross elasticity of demand is a measure of the
responsiveness of demand for one good to
change in the price of another good.
Q-19) What is price elasticity of supply?
Price elasticity of supply is a measure of the
responsiveness of supply to change in price.
Q-20) What is market structure?
Market structure is a description of the number
of buyers and sellers in a market for a
particular good, and their relative bargaining
power.
Q-21) Different types of market
structure.
(i) Perfect competition
(ii) Monopoly
(iii) Monopolistic competition
(iv) Oligopoly
(v) Duopoly
Q-22) What are the characteristics of
perfect competition?
(i) Many small (in value) buyers and
sellers, which individually can not
influent the market price
(ii) No barriers to entry and exit, so
business are free to enter or leave the
as they wish
(iii) Perfect information such that
production methods and costs
structure are identical
(iv) Homogeneous products
(v) No collusion between buyers and
sellers
Q-23) What are consequences of perfect
competition? [MQ10]
(i) Suppliers are price takers, not price
makers
(ii) Suppliers earn normal profits
(iii) There is single selling price
Q-24) Though perfect competition is seen
to be an ideal state for customers,
it is rare in practice. Why? [MQ10]
(i) There are often barrier to entry
(ii) There is asymmetric information
(iii) Goods are differentiated
(iv) There may a collusion
Q-25) What are characteristics of
monopoly?
(i) One supplier (or one dominant
supplier)
(ii) Many buyers
(iii) Barriers to entering the industry
(iv) Other barriers
- patent protection
- access to unique resources
- unique talent
- public sector monopoly
- size domination of market
Q-26) What are the classifications of
monopolies?
Monopolies can be further classified as follows:
(i) A pure monopoly
(ii) An actual monopoly
(iii) A government franchise monopoly
(iv) A natural monopoly
Q-27) What is monopolistic competition?
(i) Many buyers and sellers
(ii) Some differentiation between products
(iii) Branding of products to achieve
differentiation
(iv) Some (but not total) customer loyalty
(v) Few barriers to entry
(vi) Significant advertising in many cases
Consequences:
(i) Increases in price cause loss of some
customers
(ii) Only normal profit earned in the long
run

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40
Q-28) What are the characteristics of
oligopoly?
(i) A few large sellers but many (often
small) buyers
(ii) Product differentiation
(iii) A high degree of interdependency
Consequences:
(i) Business compete through non-price
competition, particularly advertising and
branding
(ii) Price cuts generally copied by
competitors but
(iii) Price increases are not always copied
Q-29) What are characteristics of
duopoly?
(i) Two dominant suppliers who between
them control prices
(ii) A temptation for the two suppliers to
act in concert
Consequences: include higher price as
competition is very limited.
Q-30) Is perfect competition (a free
market) the best structure?
The following arguments are put forward by
advocates of the free market:
(i) Free markets are efficient.
(ii) Free markets are impersonal.
(iii) The market forces of supply and
demand result in an efficient allocation
of economic resources.
Q-31) What is market failure?
Market failure is a situation in which a free
market mechanism fails to produce the most
efficient (the ‘Optimum’) allocation of
resources.
Q-32) What are the causes of market
failure?
Market failure is caused by a number of
factors:
(i) Market imperfection with one, or a few,
suppliers exerting market power
(ii) Externalities
(iii) The existence of public goods and
benefits that are gained by third
parties
(iv) Economies of scales
Q-33) What is market imperfection?
Market imperfection describes any situation
where actual behavior in the market differs
from what it would be if there were ‘perfect’
competition in the market.
Q-34) What is externality?
Externality is the difference between the
private and social costs or benefits, arising
from an activity.
Less formally, an ‘externality’ is a cost or
benefit which the market mechanism fails to
take into account because the market responds
to purely private signals. One activity might
produce both harmful and beneficial
externalities.
Q-35) What are public goods?
Q-36) What are the reasons for
economies of scale?
Q-37) What are the requirements for
economies of scale?
The economies of scale attainable from large
scale production may be categorized as:
Internal economies:
(i) Specialization of labor
(ii) Division of labor
(iii) Larger and more specialized machinery
(iv) Dimensional economies of scales
(v) Buying economies
(vi) Indivisibility of operations
(vii) Holding inventory
External economies:
(i) A large skilled labor force
(ii) Specialized ancillary industries

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41
Business & Finance
Chapter # 15: Regulation of a business
What is regulation?
Regulation is the form of state interference
with the operation of free market. This could
involve regulating demand, supply, price,
profit, quantity, quality, exit, entry,
information, technology or any other aspect of
production or consumption in the market.
Why is regulation of business necessary?
Regulation of a business is needed:
(v) To address market failure and
externalities,
(vi) To protect the interest of public
What is the legal meaning of regulation?
In a legal sense, a regulation is a rule created
by the government, an administrative agency
or another body which interprets statue or
circumstances of applying the statue. It is a
form of secondary or delegated legislation
which is used to
1. To implement the primary peace of
legislation,
2. To take account of particular
circumstance or factors emerging
during the period of the gradual
implementation or during the period of
primary peace of legislation
Regulations may also take form of statutory
instruments, statutory orders, by-laws and
rules.
What is efficient regulation?
Regulation has costs for some and benefits for
other. Efficient regulation exists where the
total benefits to some people exceed the total
costs to other.
What are the outcomes of regulation?
Regulation is justified using various reasons
and therefore can be classified in several broad
categories according to its outcome. Regulation
may be put in place to
(vii) Address market failure,
(viii) Increase or reduce social standing of
various social group,
(ix) See through collective desire of a
significant section of society,
(x) Enhance opportunity for the formation of
diverse preference and beliefs in society,
(xi) Affect the development of particular
preference across society as a whole,
(xii) Deal with problems of irreversibility.
How do businesses respond to regulation?
Business can respond in a variety of ways to
regulation:
(xiii) Entrenchment of a particular practice,
(xiv) Mere compliance,
(xv) Full compliance,
(xvi) Innovation.
What is compliance?
Compliance is the systems or departments
which ensure that peoples are aware of and
take steps to comply with rules and laws.
What is cartel?
Cartel is an agreement between the businesses
not to compete with each other. The
agreement is usually verbal and often informal.
In which cartel members are typically
agreed and colluded?
The cartel members typically agree or collude
on:
(xvii) Prices,
(xviii) Output levels,
(xix) Discounts,
(xx) Credit terms,
(xxi) Technology,
(xxii) Which customers they will supply,
(xxiii) Which areas the will supply,
(xxiv) Who should win a contract,
In where in industries or sectors
cartels or collusive behavior in general
are more likely to occur?
Cartels or collusive behavior in general are
more likely to occur in industries or sector
where:
(xxv) There are fewer competitor,
(xxvi) The products have similar characteristics,
(xxvii) Communication channels between
competitors are already established,
(xxviii) The industry is suffering from excess
capacity,
(xxix) There is a general economic recession
What are the factors of direct
regulation of externalities?

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42
To intervene in the level of supply in a market
where there are problems of external costs and
benefits such as pollution, the government can
use:
(xxx) Price regulation (setting maximum or
minimum selling price)
(xxxi) Direct or indirect taxation or tariffs
(xxxii) Subsidies to suppliers, for instance to
encourage exporters
(xxxiii) Regulation, by means of:
- Quotas, that is physical limits on
output so that output is at the social
optimum
- Standards that must be complied with
- Fines for those business that do not
meet the necessary standards
What are the corporate responsibilities for
financial reports?
The Chief Executive Officer (CEO) and the
Chief Financial Officer (CFO):
(xxxiv) Must review all financial reports and sign
a certificate that:
- they do not contain any
misrepresentation
- information in financial report is ‘fairly
presented’
(xxxv) are responsible for the internal financial
controls
(xxxvi) Must report any deficiencies in internal
accounting controls, or any frauds
involving management, to the board,
audit committee and external auditors
(xxxvii) Must indicate any material changes in
internal accounting controls
Submission of an inaccurate certification may
lead to a fine on the CEO or CFO of up to $ 5
million plus a prison term of up to 20 years.
State the economic advantages of
International Fare trade. [ND10] 10
What are the barriers to free international
trade?
In practice many barriers to free trade exist
because governments try to protect home
industries against foreign competition. This
‘protectionism’ can be practiced by a
government in several ways:
(xxxviii) Tariffs or customs duties
(xxxix) Import quotas
(xl) Embargoes (bans on certain imports or
exports)
(xli) Hidden subsidies for exporters and
domestic producers
(xlii) Import restrictions
(xliii) Government actions to devalue nation’s
currency