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CIMA F2 Sample Questions
Question # 1
GH acquired 3,000,000 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 Based on the information provided above, how would GH's investment in JK be accounted for in its consolidated financial statements?
A. Associate B. Joint venture C. Joint arrangement D. Financial asset
Question # 2
FG has a weighted average cost of capital of 12% based on its existing:
• level of gearing of 30% (measured as debt/(debt + equity)); and
• business operations.
This would be used as an appropriate discount factor to assess which of the following
A. A project in an industry in which FG does not currently operate, funded wholly by equity. B. A project to extend FG's existing operations, funded wholly by debt. C. A project in an industry in which FG does not currently operate, funded 30% with debt
and 70% with equity. D. A project to extend FG's existing operations, funded 30% with debt and 70% with equity.
Question # 3
On 30 November 20X9 OPQ acquires a financial asset that is classified as Available for
Which of the following describes the value of the financial asset on the date of acquisition?
A. Fair value excluding transaction costs. B. Fair value including transaction costs. C. Present value including transaction costs. D. Present value excluding transaction costs.
Question # 4
XY purchased $100,000 of quoted 8% bonds in the current year which it intends to hold
Which of the following identifies the correct classification and subsequent measurement
basis for this financial instrument?
A. A loans and receivables financial asset subsequently measured at fair value with gains
and losses in reserves. B. A held to maturity financial asset subsequently measured at amortised cost. C. A loans and receivables financial asset subsequently measured at amortised cost. D. A held to maturity financial asset subsequently measured at fair value with gains and
losses in reserves
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 true in respect of AB's ratios calculated at 31
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.
Question # 6
AB acquired a financial investment on 1 January 20X9, incurring $5,000 related agency
fees. AB initially classified the investment as held for trading, in accordance with IAS 32
Financial Instruments: Presentation.
Which of the following statements reflects the accounting treatment that AB adopted in
respect of this investment when it prepared its financial statements to 31 December 20X9?
A. Agency fees were recorded as an expense and the gain/loss on the remeasurement of
the investment at the year end was recorded in profit or loss for the year. B. Agency fees were recorded as an expense and the gain/loss on the remeasurement of
the investment at the year end was recorded in other comprehensive income C. Agency fees were added to the cost of the investment and the gain/loss on the
remeasurement of the investment at the year end was recorded in profit or loss for the
Question # 7
EF obtained a government licence, free of charge, to operate a silver mine in 20X7 and $5 million was spent on preparing the site. The mine commenced operation on 1 January 20X8. The licence requires that at the end of the mine's useful life of 20 years, the site above ground must be reinstated to its original position. EF estimated that the cost in 20 years' time of this reinstatement will be $3 million, which has a present value of $1 million at 1 January 20X8. Which THREE of the following describe how the cost of the reinstatement of the site shouldbe treated in the financial statements of EF in the year ended 31 December 20X8?
A. The cost of the mine will be increased by $1 million on 1 January 20X8. B. The cost of the mine will be increased by $3 million on 1 January 20X8. C. There will be a credit to finance costs for the unwinding of the discount on the reinstatement provision. D. There will be a debit to finance costs for the unwinding of the discount on the reinstatement provision. E. Only the cost of the site preparation will be depreciated over the mine's useful economic life. F. Depreciation will be charged over 20 years on the full cost of the mine including the reinstatement cost.
Question # 8
A group presents its financial statements in A$.
The goodwill of its only foreign subsidiary was measured at B$100,000 at acquisition.
There have been no impairments to this goodwill.
Exchange rates (where A$/B$ is the number of B$'s to each A$) are as follows:
The value of goodwill to be included in the group's statement of financial position in respect
of its foreign subsidiary for the year ended 31 December 20X4 is:
A. A$75,758. B. A$66,667. C. A$150,000. D. A$132,000.
Question # 9
Which of the following actions would be most likely to improve an entity's gross profit
A. Negotiating with trade suppliers for a bulk purchase discount B. Offering increased credit to customers C. Reducing administrative expenses by 10% D. Writing down the value of obsolete inventories
Question # 10
AB and CD are separate entities that prepare financial statements to 31 May using international accounting standards. AB and CD provide technical support services to the financial services industry and operate in the same country. The financial statements are identical except for the following: • AB purchased all operating equipment, paying $100,000, using a 5 year bank loan. The useful life of the equipment was 5 years. • CD signed an operating lease agreement for all operating equipment for 5 years paying $20,000 per year. Both entities charge all expenses relating to the equipment to cost of sales. From the information provided, which ofthe following ratios would be reliably comparable for AB andCD?
A. Gross profit margin B. Return on capital employed C. Non current asset turnover D. Profit before tax margin
Question # 11
JK is seeking to raise finance for a project and the directors would prefer to take out a fixed
rate bank loan repayable over the next 5 years. The project will increase the profit of JK
even after taking into account the additional interest costs.
Which of the following statements about the use of a bank loan in this situation is true?
A. In the long term servicing a bank loan is more expensive than servicing equity
shares due to the higher risk for the lender. B. The interest on a bank loan is deducted from profit before dividends can be declared to
equity shareholders each year. C. Because the assets of a business belong to the equity shareholders, a bank loan should
NOT be secured on the assets of the business. D. A bank loan has high issue costs compared to an issue of equity shares because it
takes longer to arrange.
Question # 12
XYZ had 600,000 ordinary shares in issue on 1 July 20X4. On 1 January 20X5, the entity
made a 1 for 2 bonus issue. The profit attributable to ordinary shareholders for the year
ended 30 June 20X5 was $2,925,000.
What is the basic earnings per share for the year ended 30 June 20X5?
A. $3.25 B. $4.88 C. $1.63 D. $3.90
Question # 13
On 1 January 20X1 KL acquired 75% of the equity shares of PQ. Goodwill arising on the acquisition was $480,000. On 31 December 20X3 KL sold the full investment of PQ to XY Group for $2,000,000. On this date the net assets of PQ were $1,340,000 and the noncontrolling interests stood at $410,000.What is the gain on disposal to be recognised in the consolidated statement of profit or loss of KL?
A. $590,000 B. $180,000 C. $660,000 D. $635,000
Question # 14
HJ is currently in dispute with an employee, who is claiming $400,000 in a legal case
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 successfully this claim.
What is the correct accounting treatment for these two items in HJ's financial statements?
A. Provide for the $400,000 potential outflow and disclose the $250,000 potential inflow. B. Provide for the $400,000 potential outflow and recognise the $250,000 potential inflow. C. Disclose the $400,000 potential outflow and disclose the $250,000 potential inflow. D. Disclose the $400,000 potential outflow and recognise the $250,000 potential inflow.
Question # 15
What figure will be presented in GHI's consolidated statement of changes in equity for the
year ended 31 December 20X4, in respect of dividends paid to non-controlling interest?
A. $25,000 B. $125,000 C. $100,000 D. $0
Question # 16
ST acquired 75% of the 2 million $1 equity shares of CD on 1 January 20X3, when the retained earnings of CD were S3,550,000. CD has no other reserves. ST paid $5,600,000 for the shares in CD and the non controlling interest was measured at its fair value of S1,400,000 at acquisition. At 1 January 20X3, the fair value of CD's net assets were equal to their carrying amount,with the exception of a building. This building had a fair value of $1,000,000 in excess of its carrying amount and a remaining useful life of 25 years on 1 January 20X3.At 31 December 20X5, the retained earnings of ST and CD were $8,500,000 and $5,250,000 respectively.What is the value of retained earnings that will be presented in the consolidated statement of financial position of ST as at 31 December 20X5?
A. $9,685,000 B. $9,775,000 C. $9,715,000 D. $10,080,000
Question # 17
LM acquired 80% of the equity shares of ST when ST's retained earnings were $50 million.
The fair value of the net assets of ST included a contingent liability with a fair value of
$100 million at the date of acquisition and a fair value of $40 million at 31 December 20X6.
No other fair value adjustments were required at the date of acquisition.LM and ST had retained earnings of $200 million and $80 million respectively at 31
The consolidated retained earnings of LM at 31 December 20X6 were:
A. $164 million B. $176 million C. $272 million D. $284 million
Question # 18
An entity undertakes an issue of new debt which has the effect of reducing the entity's
weighted average cost of capital (WACC).
Which of the following would best explain why the WACC will have fallen?
A. The entity was 100% equity financed prior to the issue of the debt. B. The risk to the shareholders has reduced leading to a fall in the cost of equity. C. The new debt is being used to replace existing debt that had a lower cost. D. The new debt is being used to replace existing debt that had the same cost.
Question # 19
Which of the following actions should XY's management take in order to reduce its
investment in working capital?
A. Sell its long-term investments and use the proceeds to reduce its bank overdraft. B. Extend credit terms with its trade customers. C. Scrap its obsolete inventory and replace with new inventory. D. Pay trade suppliers more quickly to take advantage of prompt payment discounts.
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