Question 1

JKL measure gearingas debt:equity, based on book values.At 31 December 20X5the ratio is 2:3 and JKL would like this to be 2:5.

Which of the following transactions individually would achieve this?

Options :

A : Bonus issue from the share premium account.

B : Revaluationof investment propertyto an increased fair value.

C : Repayment of a6 year termloan with the issue of 5 year redeemable debentures.

D : Issue of redeemable preference shares at par.

Answer: B

Question 2

The dividend yield of ST hasfallen in theyear to 31 May 20X5, compared to the previous year.

The share price on 31 May 20X4 was $4.50 and on 31 May 20X5 was $4.00. There were no issues of share capital during the year.

Whichof the following should explain the reduction in the dividend yield for the year to 31 May 20X5 compared to the previous year?

Options :

A : The dividend paid in the year was reduced in order to pay for new assets.

B : Surplus cash was used to pay a special dividend in additionto the normal dividend in the year.

C :

The profit for the year fell significantly and the dividend per share stayed the same.

D : To compensate investors for thereduction in share price a higher dividend per share was paid.

Answer: A

Question 3

MNO is listed on its local stock exchange. It has a high level of gearing compared to the industry average as a result of rapid expansion funded by debt. The directors of MNO would like to reduce the level of gearing by raising equity to fund the next expansion project. The directors are considering whether to use a placing of new shares or a rights issue.

Which of the following statementsis true?

Options :

A : A rights issue would not need to be underwritten because the risk of the shares not being taken up is small compared to a placing.

B : The administration costs associated with a placing are usually more expensive than a rights issue because less investors are involved.

C : A placing will increase the proportion of the total number of MNO-s shares held by large investors.

D : The directors must use a placing before offering the rights issue to existing shareholders.

Answer: C

Question 4

Which THREE of the following statements are true in relation to financial assets designated as fair value through profit or loss under IAS 39 Financial Instruments: Recognition andMeasurement?

Options :

A : Sharesin another entity held for short term trading purposes fall within this category.

B : Transaction costs in relation to these assets are expensed to profit or loss on acquisition.

C : Transaction costs in relation to these assets areadded to theinitial cost of the asset on acquisition.

D : The gainor loss on thesubsequent measurement of these assetsisrecordedwithin other comprehensive income.

E : The gain or loss on the subsequent measurement of these assets is recorded within profit for the year.

F : Oncethe asset has beensubsequentlymeasured to fair value an impairment review is undertaken.

Answer: A,B

Question 5

J'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 annualgrowth rate of 4.5% and this is expected to continue into the future.

What is JJ'scost of equity?

Options :

A : 17.6%

B : 16.1%

C : 12.5%

D : 11.1%

Answer: A

Free CIMAPRA19-F02-1-ENG Mock Exam – Practice Online Confidently

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