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CIMA Management
F2
F2 Advanced Financial Reporting Questions and Answers

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Questions # 31:

Which of the following is the correct calculation for basic earnings per share in accordance with IAS 33 Earnings Per Share?

Options:

Answer

Answer:

Questions # 32:

How would KL account for its investment in MN in its consolidated financial statements for the year to 31 December 20X9?

Options:

Joint venture

Joint arrangement

Financial asset

Subsidiary

Answer

Questions # 33:

Which TWO of the following are TRUE in respect of preparing a consolidated statement of cash flows where there has been an acquisition of a subsidiary part way through the year?

Options:

Investing activities will include a total cash outflow for the acquisition comprising the cash paid for the subsidiary less the cash held by the subsidiary at the acquisition date.

The working capital held by the subsidiary at acquisition will be excluded from the year end figures based on the percentage shareholding in the subsidiary.

Non-controlling interest will arise in relation to the subsidiary and any dividends paid to the non-controlling interest will be shown within financing activities as a cash outflow.

Any shares that were issued on acquisition of the subsidiary will be shown separately on the statement of cash flows within financing activities.

The year end cash and cash equivalents balance will be reduced by the cash and cash equivalents that were held by the subsidiary at the acquisition date.

Answer

A, C

Questions # 34:

MNO has calculated its return on capital employed ratio for 20X4 and 20X5 as 41% and 56% respectively.

Taking each statement in isolation, which would explain the movement in the ratio between the 2 years?

Options:

In 20X5 the average interest rate on borrowing decreased compared to 20X4.

In 20X4 an onerous contract was provided for and this provision did not change in 20X5.

In 20X5 the increase in value of MNO's head office was reflected in the financial statements.

In 20X4 an unused building was sold at a price in excess of its carrying value.

Answer

Questions # 35:

On 1 January 20X6 AB, a listed entity, had 10,000,000 $1 ordinary shares in issue. On 1 April 20X6 AB issued 3,000,000 $1 ordinary shares at their full market price. AB's profit was reported as $1,100,000 after charging corporate income tax of $500,000.

Place the correct values for profit and weighted average number of shares in the boxes below that will be used to calculate AB's earnings per share for the year to 31 December 20X6.

Question # 35

Options:

Answer

Answer:

Questions # 36:

BC are currently seeking to establish an accounting policy for a particular type of transaction.

There are four alternative ways in which this transaction can be treated. Each treatment will have a different outcome on the financial statements as follows:

• Treatment one means that the financial statements will be easier to prepare.

• Treatment two will give a fair representation of the transaction in the financial statements.

• Treatment three will maximise the profit figure presented in the financial statements.

• Treatment four means that the financial statements will be more easily understood by shareholders.

Which accounting treatment should BC adopt?

Options:

One

Two

Three

Four

Answer

Questions # 37:

HJ is currently in dispute with an employee, who is claiming $400,000 in a legal case against them.

HJ's legal advisors have stated that it is probable that they will lose the case and will have to pay the amount claimed.

Also, HJ are claiming $250,000 from a supplier of defective goods and the legal advisors have stated that it is probable that HJ will be successful in this claim.

What is the correct accounting treatment for these two items in HJ's financial statements?

Options:

Provide for the $400,000 potential outflow and disclose the $250,000 potential inflow.

Provide for the $400,000 potential outflow and recognise the $250,000 potential inflow.

Disclose the $400,000 potential outflow and disclose the $250,000 potential inflow.

Disclose the $400,000 potential outflow and recognise the $250,000 potential inflow.

Answer

Questions # 38:

Which TWO of the following statements about bonds and their issue are true?

Options:

Credit rating agencies assign risk categories to bond issues.

Bonds are a form of loan capital, traded on stock exchanges.

Bonds are a risk-free form of investing because they will always be repaid.

All bonds have the same terms and conditions when issued.

A bond issue is never underwritten because the return is fixed and guaranteed.

Answer

A, B

Questions # 39:

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?

Options:

Rights issue of equity shares

6% bank loan

8% preference shares

Finance lease

Answer

Questions # 40:

RST sells computer equipment and prepares its financial statements to 31 December.

On 30 September 20X5 RST sold computer software along with a two year maintenance package to a customer. The customer is given the right to return the goods within six months and claim a full refund if they are not satisfied with the computer software. The risk of return is considered to be insignificant for RST.

How should the revenue from this transaction and the right of return be recognised in the financial statements for the year ended 31 December 20X5?

Options:

Recognise 100% of the revenue from both the sale of goods and the maintenance contract and create a provision for the anticipated level of returns.

Do not recognise any revenue from the sale of goods or the maintenance contract and do not create a provision for the anticipated level of returns.

Recognise 12.5% of the revenue from both the sale of goods and the maintenance contract and do not create a provision for the anticipated level of returns.

Recognise 100% of the revenue from the sale of goods,12.5% of the revenue from the maintenance contract and create a provision for the anticipated level of returns.

Answer

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