CIMAPRA19-F02-1 Online Practice Questions and Answers

XY has a weighted average cost of capital (WACC) of 12%. The debt:equity ratio is 1:3 and this is considered low for the industry. XY needs to raise finance to purchase new machinery in the coming year. Which of the following forms of finance is most likely to increase the WACC?

A. Rights issue of equity shares

B. 6% bank loan

C. 8% preference shares

D. Finance lease

Which THREE of the following statements about preference shares are true?

A. For an investor, preference shares carry more risk than ordinary shares.

B. Unlike ordinary shares, preference shares may be cumulative.

C. The characteristics of preference shares are closer to debt than equity.

D. Preference shares cannot be issued as redeemable shares.

E. Preference shareholders receive their dividend entitlement before the equity shareholders.

F. Preference shareholders rank below the equity shareholders in a winding up.

Which of the following statements about ST is true?

A. The return on the investment in associate on an annual basis is 14%.

B. The effective tax rate incurred by ST has remained largely the same.

C. The increase in administrative expenses is in line with the increase in revenues.

D. The ratio of distribution costs to revenue has increased significantly.

Entity A entered into a 3 year operating lease on 1 April 20X3. The rentals are £5,000 a year payable in advance with an additional payment of $1,800 payable on 1 April 20X3. The rental expense to be included in the statement of profit or loss for the year ended 31 December 20X3 will be:

A. $4,200

B. $5,000

C. $6,800

D. $5,600

Which of the following is NOT an example of an unconsolidated structured entity as defined in IFRS12 Disclosure of Interests in Other Entities?

A. A post-employment benefit plan

B. A securitisation vehicle

C. An asset-backed financing scheme

D. An investment fund

As at 31 October 20X7 TU's financial statements show the entity having profit after tax of $600,000 and 900,000 $1 ordinary shares in issue. There have been no issues of shares during the year. At 31 October 20X7 TU have 300,000 share options in issue, which allow the holders to purchase ordinary shares at $2 a share in 3 years' time. The average price of the ordinary shares throughout the year was $5 a share.

What is the diluted earnings per share for the year ended 31 October 20X7?

A. 66.7 cents

B. 58.8 cents

C. 50.0 cents

D. 55.6 cents

CD acquired 100% of the equity share capital of FG for cash consideration of Kr1,200,000 on 1 January 20X7.

Retained earnings of FG at the date of acquisition was Kr800,000. CD operates from Country A and its functional and presentation currency is $. FG is located and trades throughout Country B and its functional currency is the Krona (Kr).

CD has no other subsidiaries. Goodwill had not suffered any impairment to date.

Summarised data from the statements of financial position for both entities at 31 December 20X7 is presented below:

Which of the following is the correct application of IAS 21 The Effects of Changes in Foreign Exchange Rates in translating FG's statement of financial position into the presentation currency of CD for consolidation purposes at 31 December 20X7?

A. Goodwill at closing rate. Assets and liabilities at closing rate.

B. Monetary assets and liabilities at closing rate. Non monetary assets and liabilities at historic rate.

C. Goodwill at historic rate. Assets and liabilities at closing rate.

D. Monetary assets and liabilities at historic rate. Non monetary assets and liabilities at closing rate.

AB and CD are separate entities that prepare financial statements to 31 May using international accounting standards. AB and CD provide technical support services to the financial services industry and operate in the same country. The financial statements are identical except for the following:

1.

AB purchased all operating equipment, paying $100,000, using a 5 year bank loan. The useful life of the equipment was 5 years.

2.

CD signed an operating lease agreement for all operating equipment for 5 years paying $20,000 per year.

Both entities charge all expenses relating to the equipment to cost of sales.

From the information provided, which of the following ratios would be reliably comparable for AB and CD?

A. Gross profit margin

B. Return on capital employed

C. Non current asset turnover

D. Profit before tax margin

CORRECT TEXT

LM acquired 15% of the equity share capital of ST on 1 January 20X6 for $18 million. LM acquired a further 50% of the equity share capital of ST for $50 million on 1 January 20X7 when the fair value of ST's net assets was $82 million. The

original 15% investment in ST had a fair value of $20 million at 1 January 20X7. The non controlling interest in ST was measured at its fair value of $30 million at the date control in ST was acquired.

Calculate the goodwill arising on the acquisition of ST that LM included in its consolidated financial statements at 31 December 20X7.

Give your answer to the nearest $ million.

$ ? million

A. 18, 18000000

CORRECT TEXT

MN had the following profit figures for the year ended 30 November 20X6:

MN's statement of financial position at 30 November 20X6 included the following:

Calculate return on capital employed for MN for the year ended 30 November 20X6.

Give your answer to one decimal place.

? %

A. 15.9, 15.91, 15.90, 16, 16.0