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CIMA Advanced Financial Reporting Sample Questions:

1. AB, a listed entity, prepared its financial statements to 31 December 20X7, in accordance with international accounting standards.
Which THREE of the following were disclosed as related parties of AB in its financial statements?

A) AB's bank that provides more than 60% of the entity's loan finance.
B) ST, an entity that was jointly established by AB and CD, and that is accounted for as a joint venture in AB's financial statements to 31 December 20X7.
C) AB's main supplier, GH, who supplies more than 70% of AB's goods for manufacture.
D) AB's defined benefit pension plan.
E) The wife of the Managing Director of AB, to whom AB sold a motor vehicle in the year to 31 December 20X7.

2. LM is a car dealer that is supplied inventory by car manufacturer SQ. Trading between LM and SQ is subject to a contractual agreement. This agreement states the following:
* Legal title of the cars remains with SQ until they are sold by LM to a third party.
* Upon notification of sale to a third party by LM, SQ raises an invoice at the price agreed at the original date of delivery to LM.
* LM has the right to return any car at any time without incurring a penalty.
* LM is responsible for insuring all of the cars on its property.
When considering how these cars should be accounted for, which THREE of the following statements are true?

A) When LM sells a car to a third party, SQ should recognise the revenue associated with that sale.
B) The most significant risks attached to the cars are held by SQ.
C) SQ should recognise revenue when the cars are delivered to LM.
D) SQ should recognise the cars as inventory in their financial statements.
E) LM should recognise the cars as inventory in their financial statements.
F) The most significant risks attached to the cars are held by LM.

3. LM and JK operate in the same country and prepare their financial statements to 30 June 20X6 in accordance with International Accounting Standards. On 27 June 20X6 both entities raised $1 million cash by issuing debt instruments with identical terms and conditions. Prior to this issue both entities were financed entirely by equity.
At 30 June 20X6 the gearing ratios, calculated as Debt/Equity x 100%, were as follows:
LM: 30%
JK: 65%
Which of the following independent options would explain the difference between LM and JK's year-end gearing?

A) LM revalued its land and buildings upwards in the year; JK has performed no revaluations.
B) LM made a bonus issue from retained earnings in the year; JK issued no shares in the year.
C) LM had 100,000 $1 shares at the year end; JK had 200,000 50c shares in issue at the year end.
D) LM held no investments in other entities; JK revalued its available for sale investments upwards in the year.

4. EF have just paid a dividend of 20 cents a share and the current share price is $3.75. EF regularly reinvests 40% of its profit for the year and generates a return on reinvested funds of 12%.
The cost of equity for EF using the dividend valuation model is:

A) 10.4%
B) 12.9%
C) 13.2%
D) 10.7%

5. AB acquired an investment in a debt instrument on 1 January 20X5 at its nominal value of $25,000, which it intends to hold until maturity. The instrument carried a fixed coupon interest rate of 5%, payable in arrears. Transactions costs of $5,000 were paid in respect of this investment. The effective interest rate applicable to this instrument was estimated at 9%.
Calculate the value of this investment that AB will include in its statement of financial position at 31 December 20X5.
Give your answer to the nearest whole number.
$ ?

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