Question 1

AB's financial information shows that thenon current assets' carrying value is greater than the tax base at the year end.

What is the journal entry to record the movement in the provision for deferred tax resulting from this difference?

Options :

A : Dr Deferred tax provisionCr Tax expense

B : Dr Deferred tax provisionCr Other comprehensive income

C : Dr Tax expenseCr Deferred tax provision

D : Dr Other comprehensive incomeCr Deferred tax provision

Answer: C

Question 2

If you were asked to express the overall performance of an entityas a percentage of its total investment in net assets which of the following ratios would you calculate?

Options :

A : Return on capital employed

B : Asset utilisation

C : Dividend yield

D : Non-current asset turnover

Answer: A

Question 3

LM has made the following share purchases during the year:

* Purchased 55% of the equity share capital of OP.

* Purchased 45% of the equity share capital of QR.LM have the power to appoint the majority of board members on the QR board.

* Purchased 30% of the equity share capital of ST. LM is represented by one director on the main board of ST which has five members in total. The other 70% of ST's equity share capital is owned by a single company, UV.

The Managing Director has told you that OP has performed well, but both QR and ST have not performed as expected. He is therefore pleased thatOP will be included as a subsidiaryand that QR and ST will only be included as investments in the group financial statements.

In accordance with the ethical principle of professional competence and due care how should the investments in OP, QR and ST be treated in the group financial statements?

Options :

A : OP and QR should be consolidated and ST should be equity accounted

B : OP should be consolidated and QR and ST should be equity accounted.

C : OP should be consolidated, QR should be equity accounted and ST should be valued at cost.

D : OP and QR should be equity accounted and ST should be valued at cost.

Answer: A

Question 4

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?

Options :

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

B :

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

C : The revaluation of GG-s property that shows an increase in its value since the existing bank loan was taken out.

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

Answer: B

Question 5

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