QUESTION: 109

UV has raised $100,000 through the issue of two irredeemable financial instruments:

- 6% debentures with a current market value of $101.50 per $100 nominal value; and - 8% preference shares with a current share price of $2.20 each.
The corporate income tax rate is 20%
What is the post tax cost of debt for each of these instruments?

Option
Option
Option

Answer(s): A

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QUESTION: 110

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?

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

Answer(s): B

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QUESTION: 111

XY purchased $100,000 of quoted 8% bonds in the current year which it intends to hold until redemption.
Which of the following identifies the correct classification and subsequent measurement basis for this financial instrument?

A loans and receivables financial asset subsequently measured at fair value with gains and losses in reserves.
A held to maturity financial asset subsequently measured at amortised cost.
A loans and receivables financial asset subsequently measured at amortised cost.
A held to maturity financial asset subsequently measured at fair value with gains and losses in reserves.

Answer(s): B

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QUESTION: 112

FG and RS operate in the same retail sector within the same country and are of a similar size. The following ratios have been calculated based on the financial statements for the year ended 30 September 20X4:

Which of the following factors would limit the usefulness of these ratios as a basis for assessing the comparative performances of FG and RS?

RS has a higher level of borrowings and associated finance costs.
RS sold a piece of land for a sum much greater than its carrying value.
RS operates at the low margin end of the market whilst FG operates at the high margin end.
FG has a higher level of deferred tax liabilities than RS.

Answer(s): C

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QUESTION: 109

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QUESTION: 111

QUESTION: 112