CIMA CIMAPRA19-F02-1 Exam Practice Test Instant Access

Question 1

The basic earning per share computed by a company for year ended 31st March 20X7 is 2 per share. The company had certain convertible debentures outstanding as on 31st March 20X7. The conversion of debentures to equity shares would result in the earnings per share to be 2.2. Which of the following should the company disclose?

ABasic earnings per share only

BDiluted earnings per share only

CBoth basic and diluted earnings per share

DNeither basic nor diluted earnings per share

Answer : A

Question 2

On 1 January 20X4 EF grants each of its 125 employees500 share options on the condition that they remain in employment for 3 years. During the year to 31 December 20X4 10 employees left and It is expected that a further 25 will leave before the end of the vesting period.

The fair value of each shareoption is $30 on 1 January 20X4 and $45 on 31 December 20X4.

What is the journal entry in respect of these share options in EF's financial statements for the year ended 31 December 20X4?

AOption

BOption

COption

Answer : A

Question 3

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 willlose the case and will have to pay the amount claimed.

Also, HJ areclaiming $250,000 from a supplierof defective goods and the legal advisors have stated that it is probable that HJ will besuccessful in this claim.

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

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

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

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

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

Answer : A

Question 4

On 1 January 20X7 GH purchased plant and equipment at a cost of $400,000. The temporary differences in respect of this plant and equipment at 31 December 20X7 and 20X8 have been calculated as follows:

Assume that there are no other temporary differences in the periods and that the corporate income tax rate is 25%. GH is expected to have significant taxable profits in the future.

Which of the following is the correct impact in GH's statement of financial position at 31 December 20X8 in respect of deferred tax?

AIncrease in the deferred tax asset.

BIncrease in the deferred tax liability.

CDecrease in the deferred tax asset.

DDecrease in the deferred tax liability.

Answer : A

Question 5

GH acquired3,000,000 of the 12,000,000 equity shares of JK. All shares carried equal voting rights and no other single shareholder of JK held more than 10% of the equity shares. GH has the power to participate in the financial and operating policy decisions but not control them.

Based on the information provided above, how would GH's investment in JK be accounted for in its consolidated financial statements?

AAssociate

BJoint venture

CJoint arrangement

DFinancial asset

Answer : A

Question 6

ST has in issue unquoted 7% debentures which were issued at par and are redeemable in 1 year'stime. These debentures cannot be traded. The yield to maturity on these debentures has been calculated at 5%.

Which of the following would explain why the yield to maturity is lower than the coupon?

AST will benefit from the tax relief on the interest payment.

BThe debentures will be redeemed at a discount to their par value.

CThe debentures will be redeemed at their par value.

DThe market value of the debentures must be higher than their par value.

Answer : B

Question 7

GG's gearing is currently 50% compared to the industry average of 40% (both measured as debt/equity). GG's debt is all in the form of a single bank loan that is repayable in five years' time. The directors of GG are seeking to raise finance for a new project and they are considering an additional bank loan from the same bank.

Which of the following would prevent the bank from lending the finance for the project in the form of a new bank loan?

AA covenant on the existing bank loan that restricts the level of dividend that can be paid.

BA projected decrease in interest cover that would breach a covenant on the existing loan.

CThe revaluation of GG's property that shows an increase in its value since the existing bank loan was taken out.

DA projected lack of profits to be able to claim tax relief on the additional interest arising from the new loan.

Answer : B

CIMAPRA19-F02-1 F2 Advanced Financial Reporting Exam Practice Test