QUESTION: 97

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?

Investing in W carries a higher level of risk than investing in Y.
A greater proportion of profit will be available out of which to declare a dividend in W.
Investors in Y will expect a higher return than investors in W.
Y has a greater commitment to meet interest payments than W.

Answer(s): A

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PQ is a retail business. In recent years they have improved their financial performance and increased their revenue. The following ratios have been calculated for the years ended 31 December 20X4 and 20X3:

Which of the following explanations of PQ's financial performance is consistent with these ratios?

In 20X4 PQ reduced the unit selling price resulting in an increase in volumes sold and an increase in overall revenue.
PQ changed suppliers early in 20X4 because the new supplier agreed to supply the same goods at a cheaper price.
In 20X4 taxation legislation was amended which reduced the rate of corporate income tax by 3.5%.
In 20X4 PQ sold a retail outlet resulting in a significant gain on disposal which has been deducted from administrative expenses.

Answer(s): B

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QUESTION: 99

UV entered into a five year non-cancellable operating lease for an asset two years ago. Lease payments are settled annually in arrears.
At the year end, UV no longer requires this leased asset as they have decided to discontinue the product line that it was used for.
At this date UV had made two out of the five lease payments.
Which of the following statements about the unavoidable lease payments is true in accordance with IAS 37 Provisions, Contingent Liabilities and Assets?

A provision should be recognised for the unavoidable lease payments with a corresponding charge to profit or loss.
A provision should be recognised for the unavoidable lease payments with a corresponding charge to other comprehensive income.
The amount of the unavoidable lease payments should be disclosed in the financial statements with no corresponding accounting entry.
The amount of the unavoidable lease payments should be ignored in the financial statements.

Answer(s): A

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QUESTION: 100

CORRECT TEXT
FG's statement of profit or loss account for year ended 31 December 20X1 is:

What is the operating profit margin for FG for the year ended 31 December 20X1? Give your answer to the nearest whole %.

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Answer(s): A

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