QUESTION: 49

AB and EF are located in the same country and prepare their financial statements to 31 October in accordance with International Accounting Standards. EF supplies AB with a component that is vital to AB's product range. AB is considering acquiring a controlling interest in EF by 31 December 20X4 in order to guarantee future supply. The Board of EF has indicated that such an approach would be postively considered. AB would use its control to make AB the sole customer of EF. The Finance Director of AB has been granted access to EF's management accounts and has conducted some initial analysis from the financial press. The results togther with comparisons for AB for the year to 31 October 20X4 are presented below:

AB and EF are forecasting revenues of S1,500,000 and $700,000 respectively for the year ended 31

October 20X5.
Which of the following independent options would explain the difference between the gearing ratios of AB and EF at 31 October 20X4?

EF's average cost of borrowing is significantly lower than that of AB and EF has taken advantage of that.
EF has a policy of revaluing non current assets whereas AB does not.
EF made a bonus issue of shares from retained earnings during the year whereas AB did not.
EF's market value of shares at 31 October 20X4 is lower than that of AB.

Answer(s): A

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QUESTION: 50

AB and EF are located in the same country and prepare their financial statements to 31 October in accordance with International Accounting Standards. EF supplies AB with a component that is vital to AB's product range. AB is considering acquiring a controlling interest in EF by 31 December 20X4 in order to guarantee future supply. The Board of EF has indicated that such an approach would be postively considered. AB would use its control to make AB the sole customer of EF. The Finance Director of AB has been granted access to EF's management accounts and has conducted some initial analysis from the financial press. The results togther with comparisons for AB for the year to 31 October 20X4 are presented below:

AB and EF are forecasting revenues of S1,500,000 and $700,000 respectively for the year ended 31 October 20X5.
AB's Finance Director met with one of the directors of EF to discuss the potential impact of the acquisition.
Which of the director's statements below is correct?

The P/E ratio of EF will increase to 12 after acquisition in line with that of AB.
The gross profit margin of EF will increase if AB's bargaining power is used to negotiate lower material costs for the whole group.
Redundancy costs arising from reorganisation following acquisition will be provided for by charging EF's profit for the year ended 31 October 20X4.
Dividend yield for both entities will be identical after the acquisition.

Answer(s): B

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QUESTION: 51

CORRECT TEXT
Exhibit:

Calculate the exchange difference arising on the retranslation of goodwill on the acquisition in the consolidated statement of financial position of CD at 31 December 20X7.
Give your answer to the nearest $000.

14, 14000, 13636, 13637

Answer(s): A

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QUESTION: 52

CD acquired 100% of the equity share capital of FG for cash consideration of Kr1,200,000 on 1 January 20X7.
Retained earnings of FG at the date of acquisition was Kr800,000. CD operates from Country A and its functional and presentation currency is $. FG is located and trades throughout Country B and its functional currency is the Krona (Kr).
CD has no other subsidiaries. Goodwill had not suffered any impairment to date. Summarised data from the statements of financial position for both entities at 31 December 20X7 is presented below:

Which of the following is the correct application of IAS 21 The Effects of Changes in Foreign Exchange Rates in translating FG's statement of financial position into the presentation currency of CD for consolidation purposes at 31 December 20X7?

- Goodwill at closing rate.
- Assets and liabilities at closing rate.
- Monetary assets and liabilities at closing rate.
- Non monetary assets and liabilities at historic rate.
- Goodwill at historic rate.
- Assets and liabilities at closing rate.
- Monetary assets and liabilities at historic rate.
- Non monetary assets and liabilities at closing rate.

Answer(s): A

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QUESTION: 52