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Chapter 1 – Exercises & Cases

Multiple Choice Questions​

  1. Which of the following best describes financial accounting?
    a) Flexible accounting for internal decision-making
    b) Standardized accounting for external users following PCN rules
    c) Forward-looking accounting with estimates
    d) Optional accounting that businesses can choose to use
    Answer: b) Financial accounting follows standardized rules like PCN and serves external users.

  2. In Luxembourg, all businesses must use which accounting standard?
    a) IFRS only
    b) US GAAP
    c) Plan Comptable Normalisé (PCN)
    d) No specific standard required
    Answer: c) All Luxembourg businesses must use PCN (Plan Comptable Normalisé).

  3. Who would be most interested in a company's cash flow statement?
    a) Only internal managers
    b) Only external investors
    c) Both internal and external users
    d) Only tax authorities
    Answer: c) Both internal managers and external users (investors, creditors) need cash flow information.

  4. The accounting equation states:
    a) Assets = Revenue - Expenses
    b) Assets = Liabilities + Equity
    c) Revenue = Assets + Liabilities
    d) Equity = Assets Ă— Liabilities
    Answer: b) Assets = Liabilities + Equity is the fundamental accounting equation.

  5. In Luxembourg, annual accounts must be filed with RCS within how many months of the fiscal year end?
    a) 3 months
    b) 5 months
    c) 7 months
    d) 12 months
    Answer: c) Annual accounts must be filed within 7 months of fiscal year end.

  6. Which organization regulates certified public accountants in Luxembourg?
    a) RCS
    b) OEC (Ordre des Experts-Comptables)
    c) CNC
    d) ACD
    Answer: b) OEC (Ordre des Experts-Comptables) regulates certified public accountants.

  7. Managerial accounting is primarily used by:
    a) External investors
    b) Tax authorities
    c) Internal managers and decision-makers
    d) Regulatory bodies
    Answer: c) Managerial accounting serves internal users like managers and business owners.

  8. A fiduciaire in Luxembourg is:
    a) A type of tax
    b) A licensed accounting firm
    c) A government agency
    d) An accounting software
    Answer: b) A fiduciaire is a licensed accounting firm providing services to businesses.

  9. Which of the following is NOT a typical step in the accounting cycle?
    a) Identify transactions
    b) Record transactions
    c) Ignore small transactions
    d) Prepare financial statements
    Answer: c) All transactions must be recorded; none should be ignored.

  10. In Luxembourg, businesses must retain accounting documents for:
    a) 3 years
    b) 5 years
    c) 7 years
    d) 10 years
    Answer: d) Businesses must retain documents for 10 years.

Questions​

  1. Explain the difference between financial accounting and managerial accounting. Give an example of how each would be used in a Luxembourg restaurant.
  2. List three external users of accounting information and explain what specific information each needs and why.
  3. Describe the accounting cycle. Why is each step important?
  4. What is the role of OEC in Luxembourg's accounting profession?
  5. Explain why proper accounting is legally required in Luxembourg. What are the consequences of non-compliance?
  6. How does PCN (Plan Comptable Normalisé) help ensure consistency in accounting across Luxembourg businesses?
  7. Describe the career path for someone interested in becoming an expert-comptable in Luxembourg.
  8. What services do fiduciaires provide to Luxembourg SMEs?
  9. Explain how accounting information helps business owners make decisions. Give a specific example.
  10. Why is the accounting equation (Assets = Liabilities + Equity) fundamental to all accounting?

Problems Set A​

Problem A-1: Identifying Accounting Users

Marie's restaurant, Le Petit Bistro, needs to prepare financial information for various stakeholders. For each stakeholder listed below, identify whether they are an internal or external user, and explain what accounting information they need and how they would use it:

a) Marie (the owner)
b) BGL BNP Paribas (considering a loan)
c) A potential investor
d) Administration des Contributions Directes (tax authority)
e) The restaurant manager

Problem A-2: Financial vs. Managerial Accounting

Classify each of the following as either financial accounting or managerial accounting:

a) Annual balance sheet filed with RCS
b) Monthly budget report for the owner
c) VAT return filed through eCDF
d) Cost analysis to determine menu pricing
e) Income statement for the bank loan application
f) Weekly sales report for the manager

Problem A-3: Accounting Equation

Complete the accounting equation for each scenario:

a) Assets = €50,000, Liabilities = €20,000, Equity = ?
b) Assets = €75,000, Liabilities = ?, Equity = €45,000
c) Assets = ?, Liabilities = €30,000, Equity = €40,000

Problem A-4: Luxembourg Compliance

List three legal requirements for accounting in Luxembourg. Explain why each requirement exists and what happens if a business fails to comply.

Problem A-5: Accounting Cycle Steps

Place the following steps in the correct order:

  • Prepare financial statements
  • Post to ledger
  • Make adjusting entries
  • Identify transactions
  • Prepare trial balance
  • Record transactions
  • Close the books

Problems Set B​

Problem B-1: Comprehensive User Analysis

Create a table identifying all users of accounting information for a Luxembourg SARL (limited liability company). For each user, specify:

  • Internal or external
  • Primary information needs
  • How they use the information
  • Legal or voluntary requirement for the information

Problem B-2: Accounting Profession Comparison

Compare and contrast the roles of:

  • Expert-comptable (OEC member)
  • Fiduciaire (licensed accounting firm)
  • In-house accountant

Include qualifications, responsibilities, and typical clients for each.

Problem B-3: Decision-Making Scenario

A Luxembourg SME is considering expanding to a second location. Identify: a) What financial accounting information would be needed
b) What managerial accounting information would be needed
c) How each type of information would be used in the decision
d) Who would need to see each type of information

Problem B-4: Regulatory Framework Analysis

Explain how the following work together to ensure proper accounting in Luxembourg:

  • Commercial Code
  • Plan Comptable NormalisĂ© (PCN)
  • Commission des Normes Comptables (CNC)
  • Registre de Commerce et des SociĂ©tĂ©s (RCS)

Comprehensive Problem​

Comprehensive Problem 1: Setting Up Accounting for a New Business

Sophie Martin is opening a retail clothing store in Luxembourg City called Mode Luxembourg. She needs to set up her accounting system.

Required:

  1. Explain to Sophie why accounting is important for her new business, including both legal requirements and business benefits.

  2. Identify at least five users of accounting information for Sophie's business. For each, specify:

    • Whether they are internal or external
    • What information they need
    • How they will use it

  3. Describe the accounting cycle and explain how Sophie (or her accountant) will use it to maintain records.

  4. Sophie is considering whether to:

    • Handle accounting herself
    • Hire an in-house accountant
    • Use a fiduciaire

    Provide advice on each option, including costs, benefits, and requirements.

  5. List the key legal requirements Sophie must meet for accounting in Luxembourg, including:

    • PCN requirements
    • Filing requirements
    • Document retention
    • VAT obligations

  6. Explain how financial accounting and managerial accounting will both be important for Sophie's business success.

Cases​

Case 1-1: The Overwhelmed Restaurant Owner

Jean-Pierre runs a successful restaurant in Esch-sur-Alzette. Business is good, but he's struggling with accounting. He's been keeping receipts in a shoebox and hasn't filed his VAT return in three months. His accountant has warned him about penalties, but Jean-Pierre says he's "too busy running the restaurant" to deal with paperwork.

Questions for Analysis:

  1. What are the immediate risks Jean-Pierre faces by not maintaining proper accounting records?
  2. What legal requirements is he violating?
  3. How could proper accounting actually help his business, not just satisfy legal requirements?
  4. What would you recommend to Jean-Pierre? Should he:
    • Hire a fiduciaire?
    • Hire an in-house bookkeeper?
    • Learn to do it himself?
    • Use accounting software?
  5. How would you explain the importance of accounting in a way that resonates with a busy business owner like Jean-Pierre?

Case 1-2: Choosing an Accounting Career Path

Maria is a recent accounting graduate from the University of Luxembourg. She's trying to decide between:

  • Working for a large audit firm (Big Four)
  • Joining a medium-sized fiduciaire
  • Working as an in-house accountant for a Luxembourg SME
  • Starting her own accounting practice

Questions for Analysis:

  1. What are the advantages and disadvantages of each career path?
  2. What skills and qualifications does Maria need for each option?
  3. How does the Luxembourg accounting profession differ from other countries?
  4. What factors should Maria consider in making her decision (salary, work-life balance, career growth, etc.)?
  5. What would you recommend to Maria, and why?

Solutions for these exercises are published openly in supplementary/instructor/solutions/chapter_01_solutions.md and will be surfaced within the interactive site as Phase 3 progresses.