Question 1

AB and EF are located in the same country and prepare their financial statements to 31 October in accordance with International Accounting Standards. EF supplies AB with a component that is vital to AB's product range. AB is considering acquiring a controlling interest in EF by 31 December 20X4 in order to guarantee future supply. The Board of EF has indicated that such an approach would be postively considered. AB would use its control to make AB the sole customer of EF.

The Finance Director of AB has been granted access to EF's management accounts and has conducted some initial analysis from the financial press. The results togther with comparisons for AB for the year to 31 October 20X4 are presented below:

AB and EF are forecasting revenues of S1,500,000 and $700,000 respectively for the year ended 31 October 20X5.

Which of the followingindependent optionswouldexplainthe differencebetween thegearingratios of AB and EF at 31 October 20X4?

Options :

A : EF-s average cost of borrowing is significantly lower than that of AB and EF has taken advantage of that.

B : EF has a policy of revaluing non current assetswhereas AB does not.

C : EF made a bonus issue of shares from retained earnings during the year whereas AB did not.

D : EF-s market value of sharesat 31 October 20X4 is lower than that of AB.

Answer: A

Question 2

The dividend yield of ST hasfallen in theyear 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.

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

Options :

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

B : Surplus cash was used to pay a special dividend in additionto the normal dividend in the year.

C :

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

D : To compensate investors for thereduction in share price a higher dividend per share was paid.

Answer: A

Question 3

AB owned 80% of the equity share capital of FG at 1 January 20X6. AB disposed of 10% of FG's equity share capital on 31 December 20X6 for $400,000. The non controlling interest was measured at $700,000 immediately prior to the disposal.

Which of the following represents the adjustment that AB made to non controlling interest in respect of the disposal when it prepared its consolidated financial statements at 31 December 20X6?

Options :

A : Credit of $350,000

B : Debit of $400,000

C : Debit of $350,000

D : Credit of $50,000

Answer: A

Question 4

Which of the following best describes the goal of WACC as a measure?

Options :

A : To work out the average return that is required by the company on its investments in order to satisfy all shareholders and debt holders.

B : To work out the average return that is required by the company on its investments in order to satisfy all shareholders.

C : To work out the average return that is required by the company on its investments in order to satisfy all debt holders.

D : To work out the minimum return that is required by the company on its investments in order to satisfy all shareholders and debt holders.

Answer: A

Question 5

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?

Options :

A : 15.83

B : 7.92

C : 10.56

D : 9.31

Answer: A

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