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WorksheetsFA - Interim Mock Ch-19 to Ch-21
Total questions: 60
Worksheet time: 2hrs 15mins
Which of the following items could appear in a company's statement of cash flows?
1. Surplus on revaluation of non-current assets
2. Proceeds of issue of shares
3. Proposed dividend
4. Irrecoverable debts written off 5 Dividends received
1, 2 and 5 only
2, 3, 4, 5 only
2 and 5 only
3 and 4 only
Part of the process of preparing a company's statement of cash flows is the calculation of cash inflow from operating activities.
Which of the following statements about that calculation (using the indirect method) are correct?
1. Loss on sale of operating non-current assets should be deducted from net profit before taxation.
2. Increase in inventory should be deducted from operating profits.
3. Increase in payables should be added to operating profits.
4. Depreciation charges should be added to net profit before taxation.
1, 2 and 3
1, 2 and 4
1, 3 and 4
2, 3 and 4
In the course of preparing a company's statement of cash flows, the following figures are to be included in the calculation of net cash from operating activities.
What will the net effect of these items be in the statement of cash flows?
Addition to operating profit - $890,000
Subtraction from operating profit - $890,000
Addition to operating profit - $1,070,000
Addition to operating profit - $9,90,000
The following criticisms of the above extract have been made:
1. Depreciation charges should have been added, not deducted.
2. Increase in inventory should have been added, not deducted.
3. Increase in accounts payable should have been deducted, not added.
4. Proceeds of sale of non-current assets should not appear in this part of the statement of cash flows.
Which of these criticisms are valid?
2 and 3 only
1 and 4 only
1 and 3 only
2 and 4 only
In preparing a company's statement of cash flows complying with IAS 7 Statements of Cash Flows, which, if any, of the following items could form part of the calculation of cash flow from financing activities?
1. Proceeds of sale of premises
2. Dividends received
3. Bonus issue of shares
1 only
2 only
3 only
None of them
Which of the following assertions about statement of cash flows is/are correct?
1. A statement of cash flows prepared using the direct method produces a different figure for operating cash flow from that produced if the indirect method is used.
2. Rights issues of shares do not feature in statements of cash flows.
3. A surplus on revaluation of a non-current asset will not appear as an item in a statement of cash flows.
4. A profit on the sale of a non-current asset will appear as an item under Cash Flows from Investing Activities in a statement of cash flows.
1 and 4
2 and 3
3 only
2 and 4
Which of the following items could appear in a company's statement of cash flows?
1. Proposed dividends
2. Rights issue of shares
3. Bonus issue of shares
4. Repayment of loan
1 and 3
2 and 4
1 and 4
2 and 3
IAS 7 requires the statement of cash flows to open with the calculation of net cash from operating activities, arrived at by adjusting net profit before taxation.
Which one of the following lists consists only of items which could appear in such a calculation?
Depreciation, increase in receivables, decrease in payables, proceeds from sale of equipment, increase in inventories
Increase in payables, decrease in inventories, profit on sale of plant, depreciation, decrease in receivables
Increase in payables, proceeds from sale of equipment, depreciation, decrease in receivables, increase in inventories
Depreciation, interest paid, proceeds from sale of equipment, decrease in inventories
Which of the following corrections need to be made to the calculation?
1. Depreciation should be deducted, not added.
2. Decrease in inventories should be added, not deducted.
3. Decrease in receivables should be deducted, not added.
4. Decrease in payables should be deducted, not added.
1 and 3
2 and 3
1 and 4
2 and 4
The following extract is taken from a draft version of company’s statement of cash flows, prepared by a trainee accountant.
Four possible mistakes that may have been made by the trainee accountant are listed below.
1. The profit on sale of property, plant and equipment should be subtracted, not added.
2. The increase in inventories should be added, not subtracted.
3. The decrease in trade and other receivables should be added, not subtracted.
4. The increase in trade payables should be subtracted, not added.
Which of the four mistakes did the trainee accountant make when preparing the draft statement?
1 and 2 only
1 and 3 only
2 and 4 only
3 and 4 only
Which, if any, of the following items could be included in ‘cash flows from financing activities’ in a statement of cash flows that complies with IAS 7 Statement of Cash Flows?
1. Interest received
2. Taxation paid
3. Proceeds from sale of property
1 only
2 only
3 only
None of them
Which one of the following statements is correct, with regard to the preparation of a statement of cash flows that complies with IAS 7 Statement of Cash Flows?
A statement of cash flows prepared using the direct method produces the same figure for net cash from operating activities as a statement produced by the indirect method.
An increase in a bank overdraft during the accounting period is included within cash flows from financing activities.
A profit on the sale of equipment is included within cash flows from investing activities.
A surplus on the revaluation of property will appear within cash flows from investing activities.
The following information is available about the plant, property and equipment of Lok Co, for the year to 31 December 20X3.
What will be included in cash flows from investing activities for the year, in a statement of cash flows that complies with IAS 7 Statement of Cash Flows?
$104,000
$159,000
$166,000
$204,000
A company sold warehouse premises at a loss during a financial period. How would this transaction be included in a statement of cash flows for the period that complies with IAS 7 Statement of Cash Flows and that uses the indirect method to present cash flows from operating activities?
Loss on disposal - Deduct as an adjustment in the calculation of cash flows from operating activities
Proceeds from sale - Include in cash flows from investing activities
Loss on disposal - Deduct as an adjustment in the calculation of cash flows from operating activities
Proceeds from sale - Include in cash flows from operating activities
Loss on disposal - Add as an adjustment in the calculation of cash flows from operating activities
Proceeds from sale - Include in cash flows from investing activities
Loss on disposal - Add as an adjustment in the calculation of cash flows from operating activities
Proceeds from sale - Include in cash flows from operating activities
Big Time Co had the following transactions during the year.
• Purchases from suppliers were $18,500, of which $2,550 was unpaid at the year end. Brought forward payables were $1,000.
• Wages and salaries amounted to $9,500, of which $750 was unpaid at the year end. The financial statements for the previous year showed an accrual for wages and salaries of $1,500.
• Interest of $2,100 on a long term loan was paid in the year.
• Sales revenue was $33,400, including $900 receivables at the year end. Brought forward receivables were $400.
• Interest on cash deposits at the bank amounted to $175.
Using the direct method, what is Big Time Co's cash flow from operating activities?
$3,425
$3,775
$1,425
$6,775
Which one of the following statements is correct?
If a business makes a profit, it has positive cash flow.
If a business makes a loss, it has negative cash flow.
A business may make a profit but have negative cash flow.
A business that breaks even has cash inflows equal to cash used.
Toots Co has made healthy profits for the past year, although at times the company has been close to running out of cash. Because Toots Co is profitable, Adam, their accountant is unconcerned by the cash shortage. Jo, the financial controller at Toots Co, is concerned. Jo tells Adam, ‘profits are fine on paper, but in the real world cash is king’. Jo believes Toots Co needs to take a more proactive approach to cash flow management.
Adam and Jo have two different views. Who is correct, and why?
Adam is correct. A profitable business should not waste management time on cash flow issues.
Adam is correct. A profitable business will always survive and prosper.
Jo is correct. Proactive cash flow management is required under IAS 7 Statements of Cash Flows.
Jo is correct. A business that does not have cash available to fund operations is likely to fail.
Which one of the following statements correctly identifies a valid disadvantage to users of financial statements of the statement of cash flows?
Under IAS 7 Statement of cash flows, an entity may use any format for their statement.
There is an opportunity to reclassify some cash outflows that might have been reported in the operating section as investing cash outflows.
Under IAS 7 Statement of cash flows the statement of cash flows may cover a different period of time to the other financial statements.
Cash flow figures are more open to manipulation than the profit figure.
Which of the following companies are subsidiaries of Gamma Co?
Zeta Co: Gamma Co owns 51% of the non-voting preference shares of Zeta Co Iota Co: Gamma Co has 3 representatives on the board of directors of Iota Co. Each director can cast 10 votes each out of the total of 40 votes at board meetings.
Kappa Co: Gamma Co owns 75% of the ordinary share capital of Kappa Co, however Kappa Cois located overseas and is subject to tax in that country.
Zeta Co, Iota Co and Kappa Co
Zeta Co and Kappa Co
Iota Co and Kappa Co
Zeta Co and Iota Co
Fanta Co acquired 100% of the ordinary share capital of Tizer Co on 1 October 20X7.
The profits of Tizer Co have accrued evenly throughout 20X7. Goodwill arising on the acquisition of Tizer Co was $30,000.
What was the cost of the investment in Tizer Co?
$400,000
$580,000
$610,000
$590,000
Evergreen Co owns 35% of the ordinary shares of Deciduous. What is the correct accounting treatment of the revenues and costs of Deciduous for reporting period in the consolidated statement of profit or loss of the Evergreen group?
The revenues and costs of Deciduous are added to the revenues and costs of Evergreen on a line by line basis.
35% of the profit after tax of Deciduous should be added to Evergreen’s consolidated profit before tax.
35% of the revenues and costs of Deciduous are added to the revenues and costs of Evergreen on a line by line basis.
The revenues and costs of Deciduous are added to the revenues and costs of Evergreen Co on a line by line basis, then 65% of the profit after tax is deducted so that only Evergreen Co’s share remains in the consolidated financial statements.
During the year ended 31 March 20X9, Benz Co had sold goods to Mercedes Co for $50,000. Mercedes Co still had these goods in inventory at the year end. Benz Co uses a 25% mark up on all goods.
What were the consolidated retained earnings of Mercedes Group at 31 March 20X9?
$560,000
$580,000
$570,000
$557,500
Micro Co acquired 90% of the $100,000 ordinary share capital of Minnie Co for $300,000 on 1 January 20X9 when the retained earnings of Minnie Co were $156,000. At the date of acquisition the fair value of plant held by Minnie Co was $20,000 higher than its carrying amount. The fair value of the non-controlling interest at the date of acquisition was $75,000.
What is the goodwill arising on the acquisition of Minnie Co?
$119,000
$99,000
$139,000
$24,000
On 1 April 20X7 Possum Co acquired 60% of the share capital of Koala Co for $120,000. During the year Possum Co sold goods to Koala Co for $30,000, including a profit margin of 25%. 40% of these goods were still in inventory at the year end.
What is the consolidated gross profit of the Possum group at 31 March 20X8?
$627,600
$633,000
$622,500
$627,000
Which of the following statements is/are incorrect?
1. A Co owns 25% of the ordinary share capital of B Co, which means that B Co is an associate of A Co.
2. C Co can appoint 4 out of 6 directors to the board of D Co, which means that C Co has control over D Co.
3. E Co has the power to govern the financial and operating policies of F Co, which means that F Co is an associate of E Co.
4. G Co owns 19% of the share capital of H Co, but by agreement with the majority shareholder, has control over the financial and operating policies of H Co, so H Co is an associate of G Co.
1 and 2 only
1, 2 and 3 only
3 and 4 only
4 only
Clementine Co has owned 21% of the ordinary shares of Tangerine Co for several years. Clementine Co does not have any investments in any other companies. How should the investment in Tangerine Co be reflected in the financial statements of Clementine Co?
The revenues and costs and assets and liabilities of Tangerine Co are added to the revenues and costs and assets and liabilities of Clementine Co on a line by line basis.
An amount is shown in the statement of financial position for ‘investment in associate’ being the original cost paid for the investment plus Clementine Co’s share of theprofit after tax of Tangerine Co. 21% of the profit after tax of Tangerine Co should be added to Clementine Co’s profit before tax in the statement of profit or loss each year.
An amount is shown in the statement of financial position under ‘investments’ being the original cost paid for the investment, this amount does not change. Dividends received from Tangerine are recognized in the statement of profit or loss of Clementine Co.
An amount is shown in the statement of financial position under ‘investments’ being the original cost paid for the investment, this amount does not change. 21% of the profit after tax of Tangerine Co should be added to Clementine Co’s profit after tax in the statement of profit or loss each year.
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 will appear as an item in the parent company's individual statement of financial position.
3. Consolidated financial statements ignore the legal form of the relationship between parents and subsidiaries and present the results and position of the group as if it was a single entity.
1 and 2 only
1 and 3 only
2 and 3 only
3 only
P Co, the parent company of a group, owns shares in three other companies. P Co’s holdings are:
Q - Shares giving control of 60% of the voting rights in Q Co
R - Shares giving control of 20% of the voting rights in R Co. P Co also has the right to appoint or remove all the directors of R Co
S - Shares giving control of 10% of the voting rights in S Co, plus 90% of the non-voting preference shares
Which of these companies are subsidiaries of P Co?
Q Co, R Co and S Co
Q Co and S Co only
R Co and S Co only
Q Co and R Co only
Which of the following should be accounted for in the consolidated financial statements of Company A using equity accounting?
1. An investment in 51% of the ordinary shares of W Co
2. An investment in 20% of the preference (non-voting) shares of X Co
3. An investment in 33% of the ordinary shares of Y Co
4. An investment in 20% of the ordinary shares of Z Co, and an agreement with other shareholders to appoint the majority of the directors to the board of Z Co
1 and 4 only
2 only
3 only
3 and 4 only
Breakspear Co purchased 600,000 of the voting equity shares of Fleet Co when the value of the noncontrolling interest in Fleet Co is $150,000.
The goodwill arising on acquisition is $70,000. What was the consideration paid by Breakspear Co for the investment in Fleet Co?
$420,000
$770,000
$620,000
$570,000
Date Co owns 100% of the ordinary share capital of Prune Co.
At acquisition, the fair value of Prune Co’s land was $50,000 more than shown in the financial statements of Prune Co. At 31 December 20X8, Date Co’s financial statements show a total tangible non-current asset balance of $1,250,000.
What amount should be included in the consolidated financial statements of the Date group at 31 December 20X8 for tangible non-current assets?
$2,250,000
$1,000,000
$1,850,000
$2,200,000
These figures include $30,000 that is owed by Seven Co to Six Co for the purchase of goods, for which Six Co has not yet paid. These goods were sold by Six Co for a profit of $15,000 and 50% of them were still held as inventory by Seven Co at 31 December 20X4.
What should be the amounts for trade receivables and trade payables in the consolidated statement of financial position as at 31 December 20X4?
Trade receivables $73,000, Trade payables $55,000
Trade receivables $88,000, Trade payables $70,000
Trade receivables $95,000, Trade payables $77,000
Trade receivables $103,000, Trade payables $85,000
Donna Co acquired 80% of the equity share capital of Blitsen Co on 1 January 20X4 when the retained earnings of Blitsen Co were $40,000. The fair value of the non-controlling interest at this date was $25,000.
During the year Blitsen Co sold goods to Donna Co for $20,000. This price included a mark-up of $12,000 for profit. At 31 December 20X4, 50% of these goods remained unsold in the inventory of Donna Co.
What is the value of the non-controlling interest in the Donna Group at 31 December 20X4, for the purpose of preparing the consolidated statement of financial position?
$20,800
$27,800
$26,600
$29,000
Volcano Co acquired 75% of the equity share capital of Lava Co on 1 September 20X3.
What is the parent company’s share of consolidated retained earnings that should be reported in the consolidated statement of financial position of the Volcano Group at 31 December 20X3?
$668,000
$674,000
$704,000
$722,000
Co acquired 90% of the equity share capital of Drum Co on 1 April 20X3.
Neither company paid any dividends during the year.
What profit is attributable to the parent company in the consolidated statement of profit or loss of the Tin Group for the year to 31 December 20X3?
$83,500
$110,500
$115,000
$124,000
Sand Co acquired 80% of the equity share capital of Sun Co several years ago. In the year to 31 December 20X4, Sand Co made a profit after taxation of $120,000 and Sun Co made a profit after taxation of $35,000. During the year Sun Co sold goods to Sand Co at a price of $40,000. The profit mark-up was 40% on the sales price. At 31 December 20X4, 25% of these goods were still held in the inventory of Sand Co.
What profit is attributable to the parent company in the consolidated statement of profit or loss of the Sand Group for the year to 31 December 20X4?
$144,000
$148,000
$144,800
$151,000
On 1 August 20X7 Patronic purchased 18 million of the 24 million $1 equity shares of Sardonic. The acquisition was through a share exchange of two shares in Patronic for every three shares in Sardonic. The market price of a share in Patronic at 1 August 20X7 was $5.75.
What is the fair value of the consideration transferred for the acquisition of Sardonic?
$103.5 million
$69 million
$155.25 million
$92 million
X Co acquired 80% of the equity share capital in Y Co on 31 July 20X6.
During the year ended 30 September 20X6, Y Co sold goods for $5 000 each month to X Co, at a mark up of 25%. At the end of the year X Co had 50% of these goods left in inventory.
What is the group gross profit for the year ended 30 September 20X6?
$1,901,000
$2,001,000
$2,004,000
$1,904,000
WX acquired 75% of the equity share capital of YZ several years ago. At 31 March 20X6 WX had goods in inventory valued at cost of $60,000, that had been purchased from YZ at a mark-up of 20%.
What is the effect on the profit attributable to the non-controlling interest, and the profit attributable to the parent company for the year ended 31 March 20X6?
Profit attributable to non-controlling interest - no effect
Profit attributable to WX - decrease by $5,000
Profit attributable to non-controlling interest - no effect
Profit attributable to WX - decrease by $12,000
Profit attributable to non-controlling interest - decrease by $3,000
Profit attributable to WX - decrease by $9,000
Profit attributable to non-controlling interest - decrease by $2500
Profit attributable to WX - decrease by $7500
P owns 80% of the equity share capital of S The profit after tax of S for the year ended 31 December 20X6 was $60 million. During 20X6, P sold goods to S for $4 million at cost plus 20%. At the year end 50% of these goods were left in the inventory of S.
What is non-controlling interest share of the after-tax profit of S for the year ended 31 December 20X6?
$11.36 million
$11.6 million
$11.68 million
$12 million
Which one of the following would help a company with high gearing to reduce its gearing ratio?
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
A company's gross profit as a percentage of sales increased from 24% in the year ended 31 December 20X1 to 27% in the year ended 31 December 20X2.
Which of the following events is most likely to have caused the increase?
An increase in sales volume
A purchase in December 20X1 mistakenly being recorded as happening in January 20X2
Overstatement of the closing inventory at 31 December 20X1
Understatement of the closing inventory at 31 December 20X1
From the following information regarding the year to 31 August 20X6, what is the accounts payable payment period?
You should calculate the ratio using purchases as the denominator.
40 days
50 days
53 days
57 days
Which of the following transactions would result in an increase in capital employed?
Selling inventory at a profit
Writing off a bad debt
Paying a payable in cash
Increasing the bank overdraft to purchase a non-current asset
Which of the following is a ratio which is used to measure how much a business owes in relation to its size?
Asset turnover
Profit margin
Gearing
Return on capital employed
A business operates on a gross profit margin of 331/3%. Gross profit on a sale was $800, and expenses were $680.
What is the net profit margin?
3.75%
5%
11.25%
22.67%
The industry the company operates in has a current ratio norm of 1.8. Companies who manage liquidity well in this industry have a current ratio lower than the norm.
Which of the following statements accurately describes the company’s liquidity position?
Liquidity appears to be well managed as the bank overdraft is relatively low
Liquidity appears to be poorly-controlled as shown by the large payables balance
Liquidity appears to be poorly-controlled as shown by the company’s relatively high current ratio
Liquidity appears to be poorly-controlled as shown by the existence of a bank overdraft
Why is analysis of financial statements carried out?
So that the analyst can determine a company’s accounting policies
So that the significance of financial statements can be better understood through comparisons with historical performance and with other companies
To get back to the ‘real’ underlying figures, without the numbers being skewed by the requirements of International Financial Reporting Standards
To produce a report that can replace the financial statements, so that the financial statements no longer need to be looked at
What is the acid test ratio of Edward Co given the information below?
EDWARD CO TRIAL BALANCE (EXTRACT)
1.13:1
1.40:1
1.35:1
1.26:1
After proposing a final dividend, Kenilworth Co has a current ratio of 2.0 and a quick ratio of 0.8.
If the company now uses its positive cash balance to pay that final dividend, what will be the effect upon these two ratios?
Increase current ratio and decrease quick ratio
Increase current ratio and increase quick ratio
Decrease current ratio and decrease quick ratio
Decrease current ratio and increase quick ratio
Thatch plc's current ratio this year is 1.33:1 compared to that of 1.25:1 last year. Which of the following would be possible explanations?
1 Thatch made an unusually large sale immediately prior to the year end.
2 Thatch paid its payables earlier than usual out of a bank overdraft.
3 Thatch made an unusually large purchase of goods for cash immediately prior to the year end and these goods remain in inventory.
4 Thatch paid its payables earlier than usual out of a positive cash balance.
1 and 2 only
1 and 3 only
1 and 3 only
1 and 4 only
Analysis of the statement of financial position of Charon for the year ended 20X9 reveals the following relationships:
Current ratio 2:1
Sales: current assets - 5:1
Acid test ratio - 1.5:1
If the sales for the year were $30 million, what is the value of inventory that will appear in the statement of financial position?
$1.5m
$10.5m
$3.0m
$4.5m
Which of the following statements is correct?
Xena’s liquidity and working capital has improved in 20X9
Xena is receiving cash from customers more quickly in 20X9 than in 20X8
Xena is suffering from a worsening liquidity position in 20X9
Xena is taking longer to pay suppliers in 20X9 than in 20X8
The following figures are taken from the statement of financial position of GEN Co.
Bank loan repayable in 5 years time What is the current ratio?
1.33
2.00
1.00
0.33
Financial analysts calculate ratios from the published financial statements of large companies. Which one of the following reasons is UNLIKELY to be a reason why they calculate and analyze financial ratios?
Ratios can reduce lengthy or complex financial statements into a fairly small number of more easily-understood indicators.
Ratios can indicate whether a business is at serious risk of insolvency.
Ratios can help with comparisons between businesses in the same industry.
Ratios can indicate changes in the financial performance and financial position of a business over time.
A company’s quick ratio has increased from 0.9:1 at 31 December 20X1 to 1.5:1 at 31 December 20X2.
Which of the following events could explain this increase?
Improved inventory control
The refinancing of a long-term loan
A reduction in payables
An increase in payables
If the current ratio for a company is equal to its quick ratio, which of the following statements is true?
The current ratio must be greater than one.
The company does not carry any inventory.
Receivables plus cash is greater than payables minus inventories.
Working capital is positive.
Based on this information, what is Razil's sales revenue for the year?
$982,800
$1,090,000
$2,520,000
$1,080,000
The gross profit percentage of sales is 40%.
What is the sales revenue for the year?
$1,333,500
$1,587,500
$2,381,250
The sales revenue is impossible to calculate from this information.
An electrical store and a cake shop both have the same mark up on cost. However, the gross profit margin of the electrical store is significantly higher than that of the cake shop.
Which of the following is a possible reason for this?
The cake shop has a higher turnover of inventory than the electrical store.
The electrical store takes advantage of trade-discounts for bulk buying.
The cake shop has a higher level of wastage of inventory than the electrical store.
The cake shop's revenue is increasing, while that of the electrical store is decreasing
