Question 1

Which THREE of the followingwould typically indicate a finance lease?

Options :

A : An asset with a useful life of ten years is being leased for ten years.

B : The lessor is responsible for the annual maintenance of the asset.

C : The lessee has the option to buy the asset at the end of the lease for $1.

D : The lease contract for an asset includes an upgrade to the asset every two years.

E : A leased asset has been specifically modified for the lessee-s use.

Answer: A,C

Question 2

MS Group's total profit for period on their consolidated income statement is 31,000. This includes adjusting for their share of joint venture JV2. Calculate the share of joint venture MS Group received based on the following information.

MS operating profit 41,000

Dividend from JV2 5,000

Finance cost 3,000

Tax 11,000

Options :

A : 4,000

B : 9,000

C : 1,000

D : 7,000

E : 6,000

F : 5,000

Answer: A

Question 3

Whatis meant by the term 'a placing of ordinary shares'?

Options :

A : Selling new ordinary shares to a financial institution on a pre-arranged basis.

B : Selling new ordinary shares directly to the public.

C : Selling existing ordinary shares to new investors through a stock exchange.

D : Selling new ordinary shares to existing shareholders.

Answer: A

Question 4

W and Y are very similar entities with the same level of profit before interest and tax. However, W has gearing of 95% and Y has gearing of 30%.

Which of the following statements is true?

Options :

A : Investing in W carries a higher level of risk than investing in Y.

B : A greater proportion of profit will be available out of which to declare a dividend in W.

C : Investors in Y will expect a higher return than investors in W.

D : Y has a greater commitment to meet interest payments than W.

Answer: A

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