| Exam Code | F2 |
| Exam Name | F2 Advanced Financial Reporting |
| Questions | 268 Questions Answers With Explanation |
| Update Date | July 15,2024 |
| Price |
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Which of the following defines the calculation of interest cover?
A. Profit before interest and tax divided by finance costs
B. Finance costs divided by profit before interest and tax
C. Profit after tax divided by finance costs
D. Finance costs divided by profit after tax
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 onthe 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?
A. The corporate tax rate is 25% in Country X and 40% in Country Y.
B. The average rate of inflation is 3% in Country X and 10% in Country Y.
C. The average rate of borrowing is 2% in Country X and 7% in Country Y.
D. The currency is Dollar in Country X and Krona in Country Y.
RS has issued an instrument with a nominal value of $1 million, at a discount of 2.5%, and a coupon rate of 6%. The terms of the issue are that the instrument must either be redeemed at par, at the option of the holder, in three years' time, or alternatively converted into equity shares in RS. The characteristics of this instrument taken as a whole indicates that it would be classifedas which of the following?
A. Compound instrument
B. Debt instrument
C. Equity instrument
D. Discounted instrument
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?
A. Investing in W carries a higher level of risk than investing in Y.
B. A greater proportion of profit will be available out of which to declare a dividend in W.
C. Investors in Y will expect a higher return than investors in W.
D. Y has a greater commitment to meet interest payments than W.
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 defined benefit pension plan.
B. The wife of the Managing Director of AB, to whom AB sold a motor vehicle in the year to 31 December 20X7.
C. 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.
D. AB's bank that provides more than 60% of the entity's loan finance.
E. AB's main supplier, GH, who supplies more than 70% of AB's goods for manufacture.
ST has in issue unquoted 7% debentures which were issuedat 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?
A. ST will benefit from the tax relief on the interest payment.
B. The debentures will be redeemed at a discount to their par value.
C. The debentures will be redeemed at their par value.
D. The market value of the debentures must be higher than their par value.
AB acquired its one subsidiary, CD, on 1 January 20X1. At this date the fair value of CD's property, plant and equipment was found to be $40 million higher than its carrying value. The relevant items had a remaining estimated useful life of 10 years from the date of acquisition. At 31 December 20X4 AB and CD presented property, plant and equipment of $100 millionand $50 million respectively in their individual financial statements. The value of property, plant and equipment presented in AB's consolidated statement of financial position at 31 December 20X4 is:
A. $174 million
B. $190 million
C. $150 million
D. $134 million
The consolidated statement of profit or loss for VW for the year ended 30 September 20X7 includes the following: What is VW's interest cover for the year ended 30 September 20X7?
A. 4.5
B. 3.3
C. 4.1
D. 5.1
JJ's current share price is $1.80, with a dividend of $0.20 a share just about to be paid. Dividends have increased at an average annual growth rate of 4.5% and this is expected to continue into the future. What is JJ's cost of equity?
A. 17.6%
B. 16.1%
C. 12.5%
D. 11.1%
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?
A. ST will benefit from the tax relief on the interest payment.
B. The debentures will be redeemed at a discount to their par value.
C. The debentures will be redeemed at their par value.
D. The market value of the debentures must be higher than their par value.
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 Based on the information provided above, how would GH's investment in JK be accounted for in its consolidated financial statements?
A. Associate
B. Joint venture
C. Joint arrangement
D. Financial asset
FG has a weighted average cost of capital of 12% based on its existing: • level of gearing of 30% (measured as debt/(debt + equity)); and • business operations. This would be used as an appropriate discount factor to assess which of the following significantprojects?
A. A project in an industry in which FG does not currently operate, funded wholly by equity.
B. A project to extend FG's existing operations, funded wholly by debt.
C. A project in an industry in which FG does not currently operate, funded 30% with debt
and 70% with equity.
D. A project to extend FG's existing operations, funded 30% with debt and 70% with equity.
On 30 November 20X9 OPQ acquires a financial asset that is classified as Available for Sale. Which of the following describes the value of the financial asset on the date of acquisition?
A. Fair value excluding transaction costs.
B. Fair value including transaction costs.
C. Present value including transaction costs.
D. Present value excluding transaction costs.
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. A loans and receivables financial asset subsequently measured at fair value with gains
and losses in reserves.
B. A held to maturity financial asset subsequently measured at amortised cost.
C. A loans and receivables financial asset subsequently measured at amortised cost.
D. A held to maturity financial asset subsequently measured at fair value with gains and
losses in reserves
AB sold the majority of its operating equipment to LM for cash on 30 December 20X9 and then immediately leased it back under an operating lease. AB used the cash proceeds from the sale to reduce its long term borrowings significantly. No early repayment charge was levied by the lender. Which of the following statements is true in respect of AB's ratios calculated at 31 December 20X9?
A. AB's return on capital employed would be lower as a result of this sale being recorded.
B. AB's current ratio would be lower as a result of this sale being recorded.
C. AB's non-current asset turnover would be lower as a result of this sale being recorded.
D. AB's gearing ratio would be lower as a result of this sale being recorded.
AB acquired a financial investment on 1 January 20X9, incurring $5,000 related agency fees. AB initially classified the investment as held for trading, in accordance with IAS 32 Financial Instruments: Presentation. Which of the following statements reflects the accounting treatment that AB adopted in respect of this investment when it prepared its financial statements to 31 December 20X9?
A. Agency fees were recorded as an expense and the gain/loss on the remeasurement of
the investment at the year end was recorded in profit or loss for the year.
B. Agency fees were recorded as an expense and the gain/loss on the remeasurement of
the investment at the year end was recorded in other comprehensive income
C. Agency fees were added to the cost of the investment and the gain/loss on the
remeasurement of the investment at the year end was recorded in profit or loss for the
year
EF obtained a government licence, free of charge, to operate a silver mine in 20X7 and $5 million was spent on preparing the site. The mine commenced operation on 1 January 20X8. The licence requires that at the end of the mine's useful life of 20 years, the site above ground must be reinstated to its original position. EF estimated that the cost in 20 years' time of this reinstatement will be $3 million, which has a present value of $1 million at 1 January 20X8. Which THREE of the following describe how the cost of the reinstatement of the site shouldbe treated in the financial statements of EF in the year ended 31 December 20X8?
A. The cost of the mine will be increased by $1 million on 1 January 20X8.
B. The cost of the mine will be increased by $3 million on 1 January 20X8.
C. There will be a credit to finance costs for the unwinding of the discount on the reinstatement provision.
D. There will be a debit to finance costs for the unwinding of the discount on the reinstatement provision.
E. Only the cost of the site preparation will be depreciated over the mine's useful economic life.
F. Depreciation will be charged over 20 years on the full cost of the mine including the reinstatement cost.
A group presents its financial statements in A$. The goodwill of its only foreign subsidiary was measured at B$100,000 at acquisition. There have been no impairments to this goodwill. Exchange rates (where A$/B$ is the number of B$'s to each A$) are as follows: The value of goodwill to be included in the group's statement of financial position in respect of its foreign subsidiary for the year ended 31 December 20X4 is:
A. A$75,758.
B. A$66,667.
C. A$150,000.
D. A$132,000.
Which of the following actions would be most likely to improve an entity's gross profit margin?
A. Negotiating with trade suppliers for a bulk purchase discount
B. Offering increased credit to customers
C. Reducing administrative expenses by 10%
D. Writing down the value of obsolete inventories
AB and CD are separate entities that prepare financial statements to 31 May using international accounting standards. AB and CD provide technical support services to the financial services industry and operate in the same country. The financial statements are identical except for the following: • AB purchased all operating equipment, paying $100,000, using a 5 year bank loan. The useful life of the equipment was 5 years. • CD signed an operating lease agreement for all operating equipment for 5 years paying $20,000 per year. Both entities charge all expenses relating to the equipment to cost of sales. From the information provided, which ofthe following ratios would be reliably comparable for AB andCD?
A. Gross profit margin
B. Return on capital employed
C. Non current asset turnover
D. Profit before tax margin
