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F2
F2 Advanced Financial Reporting Questions and Answers

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Viewing questions 11-20 out of questions

Questions # 11:

LM granted 100 share options to each of its 400 employees on 1 January 20X7. The options will only vest if employees remain with LM for 3 years from the grant date. The fair value of each share option was $5 on 1 January 20X7.

20 employees left in the year to 31 December 20X7 and at that date it was estimated that a further 35 would leave over the following two years.

Which of the following journal entries did LM process to account for the share options in the year to 31 December 20X7, in accordance with IFRS2 Share-based Payments?

Options:

Dr Profit or loss $57,500 ; Cr Other reserves within equity $57,500

Dr Profit or loss $57,500 ; Cr Liabilities $57,500

Dr Profit or loss $172,500 ; Cr Other reserves within equity $172,500

Dr Profit or loss $172,500 ; Cr Liabilities $172,500

Answer

Questions # 12:

XY has a weighted average cost of capital (WACC) of 10% based on its gearing level (measured as debt/debt+equity) of 40%. It is considering a signficant new project.

In which of the following situations would it be appropriate to appraise this project using XY's existing WACC of 10%?

Options:

The project is in a different industry to XY's current operations and funded entirely by equity.

The project is an extension of XY's current operations and is funded 40% by debt and 60% by equity.

The project is an extension of XY's current operations and is funded by equal amounts of debt and equity.

The project is in a different industry to XY's current operations and is funded by equal amounts of debt and equity.

Answer

Questions # 13:

W and Y are very similar entities with the same level of profit before interest and tax. However, W has gearing of 95% and Y has gearing of 30%.

Which of the following statements is true?

Options:

Investing in W carries a higher level of risk than investing in Y.

A greater proportion of profit will be available out of which to declare a dividend in W.

Investors in Y will expect a higher return than investors in W.

Y has a greater commitment to meet interest payments than W.

Answer

Questions # 14:

The dividend yield of ST has fallen in the year to 31 May 20X5, compared to the previous year.

The share price on 31 May 20X4 was $4.50 and on 31 May 20X5 was $4.00. There were no issues of share capital during the year.

Which of the following should explain the reduction in the dividend yield for the year to 31 May 20X5 compared to the previous year?

Options:

The dividend paid in the year was reduced in order to pay for new assets.

Surplus cash was used to pay a special dividend in addition to the normal dividend in the year.

The profit for the year fell significantly and the dividend per share stayed the same.

To compensate investors for the reduction in share price a higher dividend per share was paid.

Answer

Questions # 15:

Which of the following principles are the basic principles followed by the consolidated income statement?

Select ALL that apply.

Options:

Include all of the parent's income and expenses plus all of the subsidiaries' income and expenses

Ignore investment income from subsidiary to parent (e.g. dividend payments or loan interest)

After profit for the period, show the profit split between amounts attributable to the parent's shareholders and other shareholders

Include all of the parent's income and expenses minus all of the subsidiaries' income and expenses

Include investment income from subsidiary to parent (e.g. dividend payments or loan interest)

Answer

A, B, C

Questions # 16:

Which of the following statements about ST is true?

Options:

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

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

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

The ratio of distribution costs to revenue has increased significantly.

Answer

Questions # 17:

PQ is a retail business. In recent years they have improved their financial performance and increased their revenue. The following ratios have been calculated for the years ended 31 December 20X4 and 20X3:

Question # 17

Which of the following explanations of PQ's financial performance is consistent with these ratios?

Options:

In 20X4 PQ reduced the unit selling price resulting in an increase in volumes sold and an increase in overall revenue.

PQ changed suppliers early in 20X4 because the new supplier agreed to supply the same goods at a cheaper price.

In 20X4 taxation legislation was amended which reduced the rate of corporate income tax by 3.5%.

In 20X4 PQ sold a retail outlet resulting in a significant gain on disposal which has been deducted from administrative expenses.

Answer

Questions # 18:

LM acquired an asset under a 5-year non-cancellable operating lease agreement on 1 January 20X8. Under the terms of the agreement, LM paid nothing for the first year and then made four payments of $50,000 in each subsequent year. LM adopted the provisions of IAS 17 Leases when accounting for this agreement.

Which of the following is correct in respect of this operating lease in LM's financial statements for the year to 31 December 20X8?

Options:

An accrual of $40,000 was recognised.

An accrual of $50,000 was recognised.

A prepayment of $10,000 was recognised.

An expense of $50,000 was recognised.

Answer

Questions # 19:

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?