CIMA P3 Exam Questions Answers

Question #1

Which of the following features can distinguish a not-for-profit organization from profit-maximizing organizations? Select ALL that apply:

• A. They do not have external shareholders providing risk capital for the business.
• B. They do not distribute dividends, so any profit or surplus that is generated is retained by the business as a further source of capital.
• C. Their objectives usually include some social, cultural, philanthropic, welfare or environmental dimension.
• D. They offer a product that no other major organisation offers.

Question #2

Steel Co, a construction company, has won a contract with the government of Country C to build a new train line for within-city commuting. Their aim is to provide high-class travelling facilities to lowincome people. Currently, these people only have the option of using a bus for travelling within the city. However, the opposition party in Country C has protested that the plan is a favour given by the government to Steel Co rather than actually being beneficial to low-income people. Some people will suffer because their land and houses will be damaged or taken over on the construction route. As a result, the government has specified a range of conditions on the contract. Which of the following is the MOST likely to address the needs of less wealthy people if the project is successful?

• A. The government will pay the fair value of the property to people whose houses are on the specified train route and will, therefore, be taken over.
• B. The train will be fuel-efficient and will have less than half of the carbon emissions of buses accommodating the same number of people.
• C. The ticket price charged will be half of the on-going rate for traveling via bus on the same routes.
• D. Steel Co will develop the road infrastructure of some prescribed areas of the city at a subsidized price.

Question #3

What sort of performance measure might be set if a company wishes to measure the quality of its product? Select ONE correct statement:

• A. The number of defective products produced.
• B. The number of staff leaves.
• C. The rate of staff turnover.
• D. The profit per unit of product.

Question #4

Care is public sector hospital. Its directors are working on evaluating its performance and are considering different indicators for this purpose. Which of the following statements is/are TRUE for performance indicators for public sector organisations? Select ALL that apply:

• A. The concept of profitability is most important in public sector organizations.
• B. Market share can be used as a performance indicator for public sector organizations.
• C. Return on assets may not be an appropriate indicator as there may be a difficulty in measuring its value.
• D. Public sector entities tend to be risk-averse because of the political repercussions of failure.

Question #5

Sportco has just completed one year of manufacturing and selling sports goods. Its products are sold through its own stores and online business. The directors of Sportco plan to use return on assets (RoA) as their main performance indicator. Identify the DISADVANTAGES of using return on assets as a performance indicator. Select ALL that apply:

• A. RoA is an accounting measure calculated by dividing annual profits by the average net book value of assets.
• B. RoA ignores the time value of money.
• C. The profit used in the calculation of RoA may be distorted due to the underlying depreciation policy.
• D. RoA gives no indication of how the assets were financed.
• E. RoA considers the net book value of assets rather than their fair value.

Question #6

Cap Co manufactures and sells sports goods. Its products are distributed through a multi-channel network comprising of its own stores and online business, franchises and retail partners. The directors of Cap Co use profitability as their main performance indicator. Identify the DISADVANTAGES of using profitability as a performance indicator by Cap Co. Select ALL that apply:

• A. It will not provide a systematic explanation as to why one business sector of Cap Co has more favourable prospects than another.
• B. It is remote from the actions that create value for Cap Co.
• C. The inputs to the measure may vary substantially between Cap Co and its competitors.
• D. It does not provide enough insight into the dynamics and balance of Cap Co’s individual business units and the balance between them.

Question #7

Rose Co manufactures and sells cutlery and kitchen appliances. For many years, it has been recognized as a successful company and has become a household name. The products are distributed through a multi-channel network comprising its own stores and online business, franchises, and retail partners. Identify which of the following is/are financial objectives for Rose Co. Select ALL that apply:

• A. Rose Co has a target to increase its return to investors by 20% this year.
• B. Rose Co-directors plan to hold the highest market share in the year 20X8.
• C. Rose Co wants customer complaints to reduce to half of the current level.
• D. Rose Co-directors plan to improve the efficiency of operating cash flows by 15%.

Question #8

Governments may use interest rates to control inflation.Complete the following sentence for government control of inflation:(Options can be used more than once)Increasing interest rates makes it more ______for profit-making entities to borrow. It also makes borrowing more ________ for consumers, who then have less to spend. This will help to push prices _________ .1: down2: up3: expensive4: cost-saving

Question #9

Which ONE of the following is NOT a key characteristic of not-for-profit organizations?

• A. Revenue orientation for different customers.
• B. Operate for purposes other than to provide goods or services at a profit.
• C. Transparency in the organization’s mission and finances.
• D. Receive significant contributions from providers who do not expect returns.

Question #10

Which ONE of the following is NOT an example of ways natural monopolies are regulated to ensure that the public are not the victims of the monopoly power these companies?

• A. Disallowing them from making products with higher profit margins.
• B. Capping the selling process.
• C. Taxing super-profits.
• D. Applying a limit to the profits these organisations are allowed to make.