Question 1

Entity A entered into a 3 year operating lease on 1 April 20X3. The rentals are 5,000 a year payable in advance with an additional payment of $1,800 payable on 1 April 20X3

The rental expense to be included in the statement of profit or loss for the year ended 31 December 20X3 will be:

Options :

A : $4,200

B : $5,000

C : $6,800

D : $5,600

Answer: A

Question 2

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 3

KL sells luxury leather handbags and has 3 stores in exclusive shopping areas. Following years of static revenues and margins, in August 20X6KLopened a fourth store at a busy airport terminal which is proving to be successful.

The revenue and gross profit of KL for the years ended 31 March 20X7 and 20X6 are as follows:

Which of the following would be a contributing factor to the movement in the gross profit margin of KL?

Options :

A : A worldwide shortage of leather resulting in increased prices from suppliers.

B : The opportunity to sellhandbags in the airport store at a premium price.

C : KL locating a new supplier prepared to supply handbags at a cheaper price.

D : KL locating a new supplier closer to the warehouse, reducing distribution costs.

Answer: A

Question 4

On 30 November 20X9 OPQ acquires a financial asset that is classified as Available for Sale.

Which of the following describes the value of the financial asset on the date ofacquisition?

Options :

A : Fair value excluding transaction costs.

B : Fair value including transaction costs.

C : Present value including transaction costs.

D : Present value excluding transaction costs.

Answer: B

Question 5

How would KL account for itsinvestment in MNin its consolidated financial statements for the year to 31 December 20X9?

Options :

A : Joint venture

B : Joint arrangement

C : Financial asset

D : Subsidiary

Answer: A