QUESTION: 57

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?

A covenant on the existing bank loan that restricts the level of dividend that can be paid.
A projected decrease in interest cover that would breach a covenant on the existing loan.
The revaluation of GG's property that shows an increase in its value since the existing bank loan was taken out.
A projected lack of profits to be able to claim tax relief on the additional interest arising from the new loan.

Answer(s): B

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QUESTION: 58

ST has in issue unquoted 7% debentures which were issued at par and are redeemable in 1 year's time. These debentures cannot be traded. The yield to maturity on these debentures has been calculated at 5%.
Which of the following would explain why the yield to maturity is lower than the coupon?

ST will benefit from the tax relief on the interest payment.
The debentures will be redeemed at a discount to their par value.
The debentures will be redeemed at their par value.
The market value of the debentures must be higher than their par value.

Answer(s): B

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QUESTION: 59

GH acquired 3,000,000 of the 12,000,000 equity shares of JK. All shares carried equal voting rights and no other single shareholder of JK held more than 10% of the equity shares. GH has the power to participate in the financial and operating policy decisions but not control them. Based on the information provided above, how would GH's investment in JK be accounted for in its consolidated financial statements?

Associate
Joint venture
Joint arrangement
Financial asset

Answer(s): A

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QUESTION: 60

On 1 January 20X7 GH purchased plant and equipment at a cost of $400,000. The temporary differences in respect of this plant and equipment at 31 December 20X7 and 20X8 have been calculated as follows:
Assume that there are no other temporary differences in the periods and that the corporate income tax rate is 25%. GH is expected to have significant taxable profits in the future.
Which of the following is the correct impact in GH's statement of financial position at 31 December 20X8 in respect of deferred tax?

Increase in the deferred tax asset.
Increase in the deferred tax liability.
Decrease in the deferred tax asset.
Decrease in the deferred tax liability.

Answer(s): A

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QUESTION: 57

QUESTION: 58

QUESTION: 59

QUESTION: 60