Question 1

AB and FGincorporated 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 to31 December 20X1 both entitiesgenerated the same volume of sales.

Which of the following, takenindividually, would explainwhy AB's return on capital employed ratio was lower than that of FG?

Options :

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

B : FG issuedbonds 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 ishigher than that of FG.

Answer: A

Question 2

The tax benefit on a company's asset is 180,000 and the useful life on that asset is five years. The company creates a deferred tax provision to spread this benefit over the asset's useful life.

What entry is needed to reduce this deferred tax provision in the company's year two accounts?

Options :

A : DR Deferred tax liability (SOFP) 36,000

B : CR Deferred tax liability (SOFP) 36,000

C : DR Corporation tax (income statement) 36,000

D : CR Corporation tax (income statement) 36,000

E : DR Deferred tax liability (SOFP) 144,000

F : CR Deferred tax liability (SOFP) 144,000

G : DR Corporation tax (income statement) 144,000

H : CR Corporation tax (income statement) 144,000

Answer: A

Question 3

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?

Options :

A : Increase in the deferred tax asset.

B : Increase in the deferred tax liability.

C : Decrease in the deferred tax asset.

D : Decrease in the deferred tax liability

Answer: A

Question 4

What is the total comprehensive incomeattributable to the shareholders of GHI that will be presented in GHI's consolidated statement of changes in equity for the year ended 31 December 20X4?

Options :

A : $2,780,000

B : $2,880,000

C : $2,875,000

D : $3,260,000

Answer: A

Question 5

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:

Options :

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

Answer: A,B,C

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