CIMAPRA19-F02-1 Online Practice Questions and Answers

LM are just about to pay a dividend of 20 cents a share. Historically, dividends have grown at a rate of 5% each year.

The current share price is $3.05.

The cost of equity using the dividend valuation model is:

A. 12.4%

B. 11.9%

C. 7.4%

D. 6.9%

Which of the following, in accordance with IFRS 2 Share-based Payments, are only applicable to the accounting treatment of cash settled rather than equity settled share- based payment schemes?

Select ALL that apply.

A. The instruments in the scheme are remeasured at the end of each financial year to fair value.

B. The instruments in the scheme are measured at the fair value at the grant date of the scheme.

C. The credit entry in the financial statements is to liabilities.

D. The credit entry in the financial statements is to equity.

E. The expense of the scheme is spread to profit or loss over the vesting period.

Information from the financial statements of RST for the year ended 30 April 20X9 is as follows:

At 30 April 20X9 the ordinary shares are trading at $4.75.

What is the price earnings (P/E) ratio for RST at 30 April 20X9?

A. 15.83

B. 7.92

C. 10.56

D. 9.31

Which of the following statements are INCORRECT with regards to impairment of financial instruments; Select ALL that apply.

A. Held to maturity instruments and available for sale assets are both measured at amortised cost and are therefore impacted by impairment.

B. If a loss is suspected following an impairment review, a financial asset is written down to its fair value.

C. If a contract relating to a financial instrument is breached then this might be an indication of impairment.

D. In the result of an impairment loss, the carrying amount of the asset is directly reduced, or reduced through an allowance account.

E. The impairment loss on held to maturity instruments is the difference between the assets carrying amount and the present value of its future cashflows.

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

When consolidating for group accounts, a number of calculations and adjustments are required to properly combine the entities into a single group. Which of the following processes are involved in this consolidation method?

Select ALL that apply:

A. Add together the assets and liabilities of parent and subsidiary

B. Adjust for investment in subsidiaries

C. Adjustment for equity

D. Adjustment for profits

E. Adjustment for depreciation and amortisation

RS has issued an instrument with a nominal value of $1 million, at a discount of 2.5%, and a coupon rate of 6%. The terms of the issue are that the instrument must either be redeemed at par, at the option of the holder, in three years' time, or alternatively converted into equity shares in RS.

The characteristics of this instrument taken as a whole indicates that it would be classifed as which of the following?

A. Compound instrument

B. Debt instrument

C. Equity instrument

D. Discounted instrument

AB and FG incorporated on 1 January 20X1 in the same country and had similar investment in net assets. Both entities are financed entirely by equity. In the year to 31 December 20X1 both entities generated the same volume of sales.

Which of the following, taken individually, would explain why AB's return on capital employed ratio was lower than that of FG?

A. AB revalued its non current assets upwards on 31 December 20X1; FG's non current assets were stated at historic cost.

B. FG issued bonds on 31 December 20X1; AB remains ungeared.

C. AB paid a lower dividend to its shareholders than FG in the year.

D. AB's deferred tax provision at the year end is higher than that of FG.

LM and JK operate in the same country and prepare their financial statements to 30 June 20X6 in accordance with International Accounting Standards. On 27 June 20X6 both entities raised $1 million cash by issuing debt instruments with

identical terms and conditions. Prior to this issue both entities were financed entirely by equity.

At 30 June 20X6 the gearing ratios, calculated as Debt/Equity x 100%, were as follows:

LM: 30%

JK: 65%

Which of the following independent options would explain the difference between LM and JK's year-end gearing?

A. LM revalued its land and buildings upwards in the year; JK has performed no revaluations.

B. LM made a bonus issue from retained earnings in the year; JK issued no shares in the year.

C. LM had 100,000 $1 shares at the year end; JK had 200,000 50c shares in issue at the year end.

D. LM held no investments in other entities; JK revalued its available for sale investments upwards in the year.

On 1 January 20X4 JK had 1,500,000 ordinary shares in issue. On 1 September 20X4 JK issued 600,000 ordinary shares at the market value of $2.50 a share. For the financial year ended 31 December 20X4 the statement of profit or loss shows profit before tax of $625,000 and profit after tax of $500,000.

What is the earnings per share for the year ended 31 December 20X4?

A. 23.8 cents

B. 36.8 cents

C. 26.3 cents

D. 29.4 cents