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23 What figure should appear in the consolidated balance sheet of the J group as at 31 December 2004 for goodwill?

A $48,000 B $96,000 C $72,000 D $64,000 24 What figure should appear in the consolidated balance sheet of the J group as at 31 December 2004 for minority interest? A $32,000 B $16,000 C $10,000 D $24,000

25 On 1 April 2000, X, a limited liability company, paid $120,000 for 48,000 $1 shares in Y, another limited liability Company representing 80% of Ys $60,000 share capital. The retained earnings of Y at that date were $70,000. At 31 March 2005 the retained earnings of the companies were: $ X 180,000 Y 100,000 All goodwill arising has been written off because of impairment. What figure should appear in the consolidated balance sheet of the X group at 31 March 2005 for retained earnings? A $208,000 B $8,000 C $204,000 D $188,000

10 Which of the following factors would cause a companys gearing ratio to fall? 1. A bonus issue of ordinary shares. 2. A rights issue of ordinary shares. 3. An issue of loan notes. 4. An upward revaluation of non-current assets. A 1 and 3 B 2 and 3 C 1 and 4 D 2 and 4 18 Which of the following statements about accounting ratios and their interpretation are correct? 1. A low-geared company is more able to survive a downturn in profit than a highly-geared company. 2. If a company has a high price earnings ratio, this will often indicate that the market expects its profits to rise. 3. All companies should try to achieve a current ratio (current assets/current liabilities) of 2:1. A 2 and 3 only B 1 and 3 only C 1 and 2 only D All three statements are correct 23 The capital structure of a company at 30 June 2005 is as follows: $m Ordinary share capital 100 Share premium account 40 Retained earnings 60 10% Loan notes 40 The companys income statement for the year ended 30 June 2005 showed: $m Operating profit 44 Loan note interest (4) Profit for year 40 What is the companys return on capital employed? A. 40/240 = 162/3 per cent B. 40/100 = 40 per cent C. 44/240 = 181/3 per cent D. 44/200 = 22 per cent 25 The following is an extract from the income statement of a business: $000 Sales revenue Opening inventories 5,000 Purchases 15,000 less: Closing inventories 3,000 Gross profit

$000 22,000

17000 5,000

To the nearest day, how many days sales are held in the closing inventories? A. B. C. D. 3,000/22,000 x 365 = 50 days 3,000/17,000 x 365 = 64 days 3,000/15,000 x 365 = 73 days 3,000/20,000 x 365 = 55 days

23 What figure for goodwill on consolidation should appear in the consolidated balance sheet of the Hyrax group at 31 December 2003? A $96,000 B $80,000 C $64,000 D $38,400

24 What figure for minority interest should appear in the consolidated balance sheet of the Hyrax group at 31 December 2003? A $56,000 B $48,000 C $58,000 D $50,000 25 P, the parent company of a group, owns shares in three other companies. Ps holdings are: Q Shares giving control of 60% of the voting rights in Q R Shares giving control of 20% of the voting rights in R. P also has the right to appoint or remove all the directors of R. S Shares giving control of 10% of the voting rights in S. In addition, Q owns 70% of the voting rights in S. Which of these companies must be included in the consolidated financial statements of P? A Q, R and S B Q and S only C R and S only D Q and R only

10 Which of the following statements about goodwill are correct? (1) Goodwill may only be revalued to a figure in excess of cost if there is relevant and reliable evidence to support the revaluation. (2) Internally generated goodwill may not be capitalised. (3) Impairment of goodwill should always be shown separately on the face of a companys income statement. (4) Purchased goodwill is the difference between the cost of acquiring a company and the fair value of its identifiable net assets. A 1 and 3 only B 2 and 3 only C 1 and 4 only D 2 and 4 only

20 Which of the following statements relating to parent companies and subsidiaries are correct? (1) A parent company could consolidate a company in which it holds less than 50% of the ordinary share capital in certain circumstances. (2) Goodwill on consolidation must be amortised over a period not exceeding ten years. (3) Goodwill on consolidation will appear as an item in the parent companys individual balance sheet. (4) A subsidiary may be excluded from consolidation if it has not previously been consolidated and the parents investment in it is held for resale in the near future. A 1 and 4 B 2 and 3 C 1 and 2 D 3 and 4 21 A trading company makes all its sales and purchases on credit. How will the length of its working capital cycle normally be calculated? A Collection period for receivables plus inventory turnover period plus period of credit taken from suppliers. B Collection period for receivables plus inventory turnover period minus period of credit taken from suppliers. C Collection period for receivables plus period of credit taken from suppliers. D Average time from date of purchase of goods to the receipt of cash from the sale of those goods. 22 A company monitors the performance of its credit control department by calculating the receivables collection period as closing trade receivables/annual credit sales x 365. Which of the following factors could cause the receivables collection period calculated as above to be abnormally high compared to the monthly average level during the year? 1 The companys trade is seasonal 2 A downturn in the companys credit sales in the last few months of its accounting period. 3 A large credit sale in the final month of its accounting period A 1 and 2 B 1 and 3 C 2 and 3 D All three factors

23 What is the companys return on total capital employed? A 32/200 = 16% B 32/400 = 8% C 40/400 = 10% D 14/300 = 42/3% 24 What is the companys return on owners equity? A 32/200 = 16% B 32/300 = 102/3% C 18/300 = 6% D 14/300 = 42/3% 25 What is the companys gearing ratio? A 300/400 = 75% B 100/200 = 50% C 100/400 = 25% D 300/100 = 300%

21 What amount should appear in the groups consolidated balance sheet at 31 December 2002 for goodwill? A $25,000 B $28,000 C $7,000 D $14,000 22 What amount should appear in the groups consolidated balance sheet at 31 December 2002 for minority interest? A $52,000 B $20,000 C $34,000 D $32,000 23 What amount should appear in the groups consolidated balance sheet at 31 December 2002 for accumulated profits? A $266,000 B $338,000 C $370,000 D $245,000 24 A companys gross profit as a percentage of sales increased from 24% in the year ended 31 December 2001 to 27% in the year ended 31 December 2002. Which of the following events is most likely to have caused the increase? A An increase in sales volume B A purchase in December 2001 mistakenly being recorded as happening in January 2002 C Overstatement of the closing inventory at 31 December 2001 D Understatement of the closing inventory at 31 December 2001.

What is the return on equity shareholders capital employed, using closing capital figures? A 44% B 24% C 37% D 58%

25 The capital of a limited liability company is made up as follows: $m Issued ordinary share capital 1,000 Share premium account 1, 500 Accumulated profits 3,000 8% loan notes 1,500 Which of the following calculations of the companys gearing ratio, based on these figures, is correct? A 1,500/6,000 = 1 25% B 4,500/1,500 = 300% C 4,500/6,000 = 1 75% D 1,500/1,000 = 150% 24 Which one of the following would help a company with high gearing to reduce its gearing ratio? A. B. C. D. Making a rights issue of equity shares. Issuing further long-term loan notes. Making a bonus issue of shares. Paying dividends on its equity shares

25 Which one of the following would cause a companys gross profit percentage on sales to fall? A. B. C. D. Sales volume has declined. Closing inventory is lower than opening inventory. Some closing inventory items were included at less than cost. Selling and distribution costs have risen.

17 Which of the following statements are correct? (1) All non-current assets must be depreciated. (2) If goodwill is revalued, the revaluation surplus appears in the statement of changes in equity. (3) If a tangible non-current asset is revalued, all tangible assets of the same class should be revalued. (4) In a companys published balance sheet, tangible assets and intangible assets must be shown separately. A 1 and 2 B 2 and 3 C 3 and 4 D 1 and 4

18 What is the companys return on total capital employed? A 20/150 = 133% B 15/150 = 10% C 20/100 = 20% D 15/100 = 15% 19 What is the companys return on shareholders equity? A 15/40 = 375% B 20/100 = 20% C 15/100 = 15% D 20/150 = 133%

The following information is relevant for questions 24 and 25 24 On 1 January 2001 H acquired 80% of the share capital of S for $1,100,000. The share capital and reserves of the two companies were: At 1 January At 31 December 2001 2005 $000 $000 Share capital H 1,000 1,200 S 400 400 Retained earnings H 800 1,300 S 500 800 What was the goodwill arising on Hs acquisition of S? A $200,000 B $780,000 C $380,000 D $880,000 25 What should the minority interest figure be in the groups consolidated balance sheet at 31 December 2005? A $240,000 B $80,000 C $180,000 D $140,000 6 A companys gross profit as a percentage of sales increased from 28% in the year ended 31 December 2005 to 33% in the year ended 31 December 2006. Which one of the following could have caused the increase? A. B. C. D. An increase in sales volume. Understatement of closing inventory at 31 December 2005. Overstatement of closing inventory at 31 December 2005. Goods received in December 2005 and included in inventory at 31 December 2005 were not recorded in purchases until January 2006.

13. X has a 40% shareholding in each of the following three companies: P: X has the right to appoint or remove a majority of the directors of P. Q: X has significant influence over the affairs of Q. R: X has the power to govern the financial and operating policies of R. Which of these companies are subsidiaries of X for financial reporting purposes? A Q and R only B P and R only C P and Q only D P, Q and R

24 Which of the following events would reduce a companys gearing? 1 An issue of loan notes 2 A rights issue of equity shares 3 A bonus issue of equity shares A 1 and 2 B 1 and 3 C 3 only D 2 only