Question 1

Information from the financial statements of an entity for the year to 31 December 20X5:

The gearing ratio calculated as debt/equity and interest cover are:

Options :

A : gearing of 15% andinterest cover of 6.

B : gearing of 16% and interest cover of 6.

C : gearing of 15% and interest cover of 4.

D : gearing of 16% and interest cover of 4.

Answer: A

Question 2

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

On 30 September 20X5 RST soldcomputer 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 thefinancial statements for the year ended 31 December 20X5?

Options :

A : Recognise 100% of the revenue from both the sale of goods and the maintenance contract and create aprovision for the anticipated level of returns.

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

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

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

Answer: D

Question 3

Which TWO of the following are true in relation to IAS21 The Effects of Changes in Foreign Exchange Rates when consolidating an overseas subsidiary?

Options :

A : Acurrent period exchange gain or loss is shown within the consolidated statement of comprehensive income within other comprehensive income.

B : Goodwill is re-translated at the end of each reporting period and reflected at the period end exchange rate in the consolidated statement of financial position.

C :

Assets and liabilities of the subsidiary are translated at each reporting date using the average exchange rate for the period.

D : Goodwill is reflected in the consolidated statement of financial position translated at the exchange rate on the date of acquisition.

E : The statement of profit or loss of the subsidiary is translated for the reporting period using the closing exchange rate.

Answer: A,B

Question 4

WX acquired60% of theequitysharesof CD on 1 January 20X3. WX sold5% of the equityshares it heldfor $60,000on 31 December 20X5. At that datethe net assetsof CD were $120,000and thefair value of the non-controlling interestin CDwas measured at$21,000.No goodwill arose on the original acquisition of CD.

When preparing its consoldiated financial statements, WX will process which of the following adjustments to its group retained earnings?

Options :

A : A debit of $39,000

B : A credit of $54,000

C : A credit of $39,000

D : A debit of $54,000

Answer: B

Question 5

AB sold the majority of its operating equipment to LM for cash on 30 December 20X9 and then immediately leased it back under an operating lease.

AB used the cash proceeds from the sale to reduce its long term borrowings significantly. No early repayment charge was levied by the lender.

Which of the following statements is truein respect of AB's ratios calculated at 31 December 20X9?

Options :

A : AB-s return on capital employed would be lower as a result of this sale being recorded.

B : AB-s current ratio would be lower as a result of this sale being recorded.

C : AB-s non-current asset turnover would be lower as a result of this sale being recorded.

D : AB-s gearing ratio would be lower as a result of this sale being recorded.

Answer: D

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