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100+ Free IFoA CB1 Practice Questions

IFoA Subject CB1 Business Finance practice questions are available now; exam metadata is being verified.

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Financial gearing increases the volatility of returns to ordinary shareholders because:

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2026 Statistics

Key Facts: IFoA CB1 Exam

3h20m

Exam Duration

IFoA curriculum

4

Syllabus Areas

IFoA CB1 syllabus

35%

Largest Area (Financing)

IFoA CB1 syllabus

150 hrs

Recommended Study

IFoA curriculum

30/50/20

Knowledge/Application/Higher

IFoA CB1 syllabus

100

Practice Questions

OpenExamPrep

CB1 Business Finance is one of the IFoA Core Business (Core Principles) subjects on the associate pathway, assessed by a single 3-hour-20-minute computer-based written exam combining a written Paper A and a problem-based Paper B. The 2026 syllabus weights the four areas as Corporate governance and organisation 18%, How corporates are financed 35%, Evaluating projects 15%, and Constructing and interpreting company accounts 32%, with roughly 30% of marks for knowledge, 50% for application and 20% for higher-order skills. The IFoA does not publish a fixed question count or pass mark, and recommends around 150 study hours. The real exam uses structured written answers; this free bank provides 100 MCQs as knowledge prep across the testable body of corporate-finance and accounting material.

Sample IFoA CB1 Practice Questions

Try these sample questions to test your IFoA CB1 exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1Under the agency theory of the firm, an 'agency cost' most directly arises because:
A.Shareholders and the directors they appoint may have divergent interests
B.Auditors are paid a fixed fee regardless of audit quality
C.Companies must comply with international financial reporting standards
D.Dividends are taxed differently from capital gains
Explanation: Agency costs arise from the separation of ownership (shareholders, the principals) and control (directors, the agents). Because managers may pursue their own interests rather than maximising shareholder wealth, costs are incurred in monitoring, bonding and from any residual loss.
2The primary financial objective normally assumed for a listed company in corporate finance theory is to:
A.Maximise the wealth of its ordinary shareholders
B.Minimise the company's overall tax charge
C.Maximise the firm's market share
D.Maximise reported accounting profit each year
Explanation: Corporate finance theory assumes the firm seeks to maximise shareholder wealth, usually proxied by the long-run market value of the equity. This focuses on cash flows and risk over time rather than a single accounting figure.
3A key feature distinguishing a public limited company (plc) from a private limited company (Ltd) in the UK is that a plc:
A.May offer its shares to the public
B.Is exempt from preparing audited accounts
C.Cannot issue loan capital
D.Has unlimited liability for its shareholders
Explanation: A public limited company is permitted to offer its shares to the public and may have them listed on a stock exchange, whereas a private company cannot offer shares to the public. Both forms confer limited liability on members.
4Within a corporate governance framework, the principal role of non-executive directors is to:
A.Set their own remuneration without board approval
B.Manage the company's day-to-day operations
C.Provide independent oversight and challenge to executive management
D.Act as the external auditors of the company
Explanation: Non-executive directors bring independent judgement to the board, scrutinising the performance of executive management and helping protect shareholder interests. They typically sit on audit, remuneration and nomination committees.
5The 'comply or explain' principle that underpins the UK Corporate Governance Code means a listed company must:
A.Comply only with provisions chosen by its auditors
B.Follow every provision of the Code without exception
C.Either comply with a provision or explain why it has not
D.Obtain regulatory approval before deviating from any provision
Explanation: The Code operates on a 'comply or explain' basis: companies should apply its provisions, but where they depart they must explain to shareholders the reasons. This offers flexibility while preserving transparency and accountability.
6Which group is generally regarded as a primary 'internal' stakeholder of a company?
A.Trade suppliers
B.Government tax authorities
C.Employees
D.Local community groups
Explanation: Employees are internal stakeholders because they work within the organisation and are directly affected by its decisions. Shareholders and managers are also typically classed as internal stakeholders.
7A company limited by guarantee differs from a company limited by shares in that members' liability is limited to:
A.The amount they agree to contribute if the company is wound up
B.The nominal value of shares they hold
C.The market value of their shareholding
D.Nothing, as liability is always unlimited
Explanation: In a company limited by guarantee, members undertake to contribute a fixed amount to the assets if the company is wound up. Such companies, often non-profit bodies, have no share capital.
8The separation of the roles of chairman and chief executive in a listed company is recommended primarily to:
A.Eliminate the need for an audit committee
B.Reduce the company's payroll costs
C.Avoid an excessive concentration of power in one individual
D.Satisfy international accounting standards
Explanation: Splitting the chairman and CEO roles prevents one person from dominating both board leadership and executive decision-making, supporting independent oversight and effective challenge. This is a core governance recommendation.
9Which of the following best describes 'corporate social responsibility' (CSR) in the context of a company's objectives?
A.The duty to maximise short-term accounting profit only
B.A legal requirement to pay the highest possible dividends
C.Voluntary consideration of social and environmental impacts beyond legal minimums
D.A method of avoiding all corporate taxation
Explanation: CSR involves a company voluntarily taking responsibility for its impact on society and the environment beyond strict legal obligations. It reflects broader stakeholder considerations alongside shareholder wealth.
10A partnership formed under standard partnership law differs from an incorporated company chiefly because a traditional partnership:
A.Issues tradable ordinary shares
B.Has a legal personality separate from its partners
C.Generally exposes its partners to unlimited liability
D.Must publish audited annual accounts
Explanation: In an ordinary partnership the partners typically have unlimited personal liability for the firm's debts, and the partnership has no separate legal personality. This contrasts with the limited liability and separate legal status of a company.

About the IFoA CB1 Practice Questions

Verified exam format metadata for IFoA Subject CB1 Business Finance is pending. The practice questions above remain available while official exam length, timing, passing score, fee, and administrator details are reviewed.