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CIMA Advanced Financial Reporting Sample Questions:

1. Which of the following statements are incorrect regarding identifiable assets? Select ALL that apply.

A) Assets can also be identifiable if they arise from contractual or legal rights
B) Contingent assets and liabilities are examples of exceptions to the rules governing identifiable assets
C) To be identifiable assets must be separable from the subsidiary
D) Net assets must be identifiable at acquisition
E) Deferred tax assets and liabilities are not classed as identifiable assets

2. 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 new debt is being used to replace existing debt that had the same cost.
C) The risk to the shareholders has reduced leading to a fall in the cost of equity.
D) The new debt is being used to replace existing debt that had a lower cost.

3. XY puchased 2% of the equity shares of FG on 1 October 20X3.
XY paid $25,000 for the shares as well as a transaction cost of 2.5% of the purchase price.
The shares are being held for short term trading and XY intend to sell them in December 20X3.
At the year end of 31 October 20X3, the shares in FG could be sold for $28,000.
What is the journal entry to record the subsequent measurement for this investment at 31 October
20X3?

A) Debit investment in equity shares $2,375 and credit profit or loss $2,375.
B) Debit investment in equity shares $2,375 and credit other reserves $2,375.
C) Debit investment in equity shares $3,000 and credit profit or loss $3,000.
D) Debit investment in equity shares $3,000 and credit other reserves $3,000.

4. 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) $10,080,000
B) $9,685,000
C) $9,775,000
D) $9,715,000

5. AB and CD are competitors supplying components to the car manufacturing industry. AB operates in Country X and CD operates in Country Y.
Both entities were incorporated on the same day, are the same size and prepare financial statements to 31 March each year using international accounting standards.
Which of the following statements taken individually would limit the usefulness of the comparison of the return on capital employed ratio between the two entities?

A) The currency is Dollar in Country X and Krona in Country Y.
B) The corporate tax rate is 25% in Country X and 40% in Country Y.
C) The average rate of borrowing is 2% in Country X and 7% in Country Y.
D) The average rate of inflation is 3% in Country X and 10% in Country Y.

Solutions: