FINSPEED ROUND 1 - INDIVIDUALS F

‘000 ‘000
Equity share capital (1 c.u. per share) 20,000
Share premium 2,500
Trade payables 5,022
Trade receivables 15,381
Accruals 580
5% bank loan payable in 10 years 30,000
Cash at bank 11,996
Retained earnings 18,518
Interest 1,125
Gross profit 39,539
Distribution cost 9,981
Administrative expenses 5,478
Dividends paid 1,950
Closing inventories 18,000
Property (Buildings) - cost 30,000
Property (Buildings) - accumulated depreciation as at 3,750
1 November 20X6
Plant and equipment - cost 57,690
Plant and equipment - accumulated depreciation as at 31,692
1 November 20X6
151,601151,601
Further information:
1. There were no movements in non-current assets during the year. Plant and equipment is depreciated on a 10% straight-line
basis. Buildings are depreciated over their useful life of 40 years. Depreciation is charged to administrative expenses.
2. The figure for closing inventories in the trial balance is the sales value (goods are sold at 25% markup). Inventory should be
valued at cost.
3. The company paid 72,000 c.u. insurance cost in June 20X7, which covered the period from 1 July 20X7 to 30 June 20X8. This
was included in administrative expenses in the trial balance.
4. Interest on bank loan for the last three months of the year has not been included in the trial balance.
5. The income tax charge for the year has been calculated as 1,881,000 c.u.
6. A customer was injured by a defective product during the year and has issued proceedings against the company. The legal
department of the company has advised that there is 75% probability that will result in an estimated payout of 750,000 c.u.
Provisions are charged to administrative expenses.
7. The company rented additional warehouse space during the year for a period of six months, commencing on 1 August 20X7.
The rent payable is 4,000 c.u. per month, no payments have been made to the date. Rent is charged to distribution costs.
8. During the year, the company issued a 1 for 20 bonus share issue from share premium.
9. A cheque which was sent on 23 October 20X7 to a supplier for 32,000 c.u. was incorrectly recorded as 23,000 c.u.
Prepare the statement of profit or loss for the company for the year ended 31 October 20X7.
*NOTE: Negative numbers/Expenses are denoted as -xxxx
No comma (,) is required.
✘ 1. Gross profit 39,539 ✘1
Points:
0/1 Correct answers:
1. 35939 or 35,939 or 35.939
✓

✘ 2. Distribution cost -9,981 ✘1

Points:
0/1 Correct answers:
1. -9993 or -9,993
✓

✘ 3. Administrative expenses -5478 ✘1

Points:
0/1 Correct answers:
1. -12699 or -12,699
✓

✘ 4. Profit/Loss from operation nope ✘1

Points:
0/1 Correct answers:
1. 13247 or 13,247
✓

✘ 5. Finance cost nope ✘1

Points:
0/1 Correct answers:
1. -1500 or -1,500
✓

✘ 6. Profit/Loss for the year - before tax nope ✘1

Points:
0/1 Correct answers:
1. 11747 or 11,747
✓

✘ 7. Income tax payment nope ✘1

Points:
0/1 Correct answers:
1. -1881 or -1,881
✓

✘ 8. Profit/Loss for the year nope ✘1

Points:
0/1 Correct answers:
1. 9866 or 9,866
✓
 Golden Gate Windsurfing Inc. is considering a project to expand its current operation. Given the following information and
assuming straight-line depreciation to zero:
What is the net present value of this project?
Should Golden Gate Windsurfing Inc. accept the project and why?
· Market research study = $15,000 (research already conducted)
· Project life = 5 years
· Initial investment on fixed assets = $320,000; the fixed assets will be sold for $30,000 at the end of year 5.
· Initial working capital = $25,000 (the money will be recovered on closure of the project)
· Operating income = (sales – costs) = $150,000 per year.
· Losses in current sales if proceed the project: $20,000 in year 1 and $16,000 in year 2.
· Corporate tax rate = 25%
· Discount rate 13.45%

✘ 9. Total CF at Year 0 nope ✘1

Points:
0/1 Correct answers:
1. -345000 or -345,000
✓

✘ 10. Total CF at Year 1 nope ✘1

Points:
0/1 Correct answers:
1. 113500 or 113,500
✓

✘ 11. Total CF at Year 2 nope ✘1

Points:
0/1 Correct answers:
1. 116500 or 116,500
✓

✘ 12. Total CF at Year 3 nope ✘1

Points:
0/1 Correct answers:
1. 128500 or 128,500
✓

✘ 13. Total CF at Year 4 nope ✘1

Points:
0/1 Correct answers:
1. 128500 or 128,500
✓

✘ 14. Total CF at Year 5 nope ✘1

Points:
0/1 Correct answers:
1. 176000 or 176,000
✓
✘ 15. NPV of the whole project nope ✘1
Points:
0/1 Correct answers:
1. 104774 or 104,774
✓

✓ 16. Is the project invest-worthy?

Points: Yes. ✓
1/1 No.

✓ 17. 3. Suppose that at a given interest rate and money supply, all firms and households simultaneously try to add to their money
balances. They do this by trying to ________, which causes an excess ________, which causes a(n) ________, and finally a(n)
Points: ________ in the interest rate.
1/1
buy bonds; demand for bonds; increase in the price of bonds; decrease
sell bonds; supply of bonds; increase in the price of bonds; decrease
buy bonds; supply of bonds; decrease in the price of bonds; increase
sell bonds; supply of bonds; decrease in the price of bonds; increase ✓

✘ 18. A business can make a profit and yet have a decreased bank balance. Which of the following might cause this to happen?

Points: The lengthening of credit period to customers ✓

0/1 The lengthening of credit period received from suppliers ✘
The disposal of fixed assets at a loss
The charging of depreciation

✓ 19. As the expansion phase of the business cycle advances from early stage to late stage, businesses most likely experience a
decrease in:
Points:
1/1 labor costs.
capital investment.
availability of qualified workers. ✓

✘ 20. Which of the following is a type of fixed income securities

Points: Checkable deposits

0/1 Stock options
Collateralized Loan Obligations (CLO) ✓
Credit Default Swaps (CDS) ✘

✓ 21. The closing inventory of Hailey ltd. on December 31st, 2015 amounted to 284,700
The following items were included, at cost, in the total:
Points: * 400 coats, which has cost $80 each and normally sold for $150 each. Because of defect in manufacture, they were sold after
1/1 December 31st, 2015 at half selling price. Selling expense accounted 5% of the proceeds
* 800 skirts, which had cost $20 each. These too were found to be defective. Remedial work in February 20X6 cost $5 per skirt,
and selling expenses were $1 per skirt. They were sold for $28 each.
What should be the inventory value after considering the above items?
281200 ✓
282800
329200
284700
✘ 22. What is the reason behind charging depreciation in historical cost accounting?

Points: To ensure funds available for the eventual replacement of the asset
0/1 To comply with accounting consistence
To ensure the asset is included in the statement of financial position at the lowest of cost and net realizable
value
✘
To match the cost of non-current asset with the revenue that the asset generates ✓

✓ 23. Which role is a central bank least likely to assume?

Points: Lender of last resort.

1/1 Sole supervisor of banks. ✓
Supplier of the currency.

✓ 24. Convergence of incomes over time between emerging market countries and developed countries is most likely due to:

Points: total factor productivity.

1/1 diminishing marginal productivity of capital ✓
the exhaustion of non-renewable resources.

✘ 25. Andy ltd. is registered for VAT, in the month of April, it sells goods to customers for a total of $89,436 excluding VAT and
purchase goods from suppliers for a total of $86,790 including VAT.
Points: What is the net amount shown in Gerrard Ltd.’s VAT account at the end of April?
0/1
$3,422 debit ✘
$2,452 debit
$3,422 credit ✓
$2,452 credit

✓ 26. 4. Monetary equilibrium occurs when the

Points: existing supply of money is willingly held by households and firms in the economy at the current rate of
1/1 interest.
✓
supply and demand for all goods in the economy are equal at the current rate of interest.
the money supply is growing at a constant rate.
growth in the money supply is zero.
nominal rate of interest equals the real rate of interest.

✘ 27. 7*. When the dollar appreciates, U.S.

Points: exports and imports increase.

0/1 exports increase, while imports decrease. ✘
exports decrease, while imports increase. ✓
exports and imports decrease.

✓ 28. The price value of a basis point (PVBP) for a 7-year, 10 percent semiannual pay bond with a par value of $1,000 and yield of 6
percent is closest to:
Points:
1/1 $0.00.
$0.64. ✓
$0.92.
0.28
✓ 29. Which of the following statement is least accurate?

Points: A Conventional mortgage is an example of an amortizing loan

1/1 Call provisions give the issuer the right and the obligation to retire all or a part of an issue prior to maturity ✓
Sinking fund provisions provide for the repayment of principal through a series of payments over the life of the issue
All are accurate

✓ 30. . Which of the following two bonds is more price sensitive to changes in interest rates?
1) A par value bond, A, with a 12-year-to-maturity and a 12% coupon rate.
Points: 2) A zero-coupon bond, B, with a 12-year-to-maturity and a 12% yield-to-maturity.
1/1
Bond A because of the higher yield to maturity.
Bond A because of the longer time to maturity.
Bond B because of the longer duration. ✓
Both have the same sensitivity because both have the same yield to maturity.

✓ 31. The following information relates to a bank reconciliation. The balance in the cash at bank account before taking the items
below into account was $8,970 overdrawn
Points: 1 Bank charges of $550 on the bank statement have not been entered in the cash at bank
1/1 2 The bank has credited the account in error with $425 which belongs to another customer
3 Cheque payments totaling $3,275 have been entered in the cash at bank account but have not been presented for payment
4 Cheques totaling $5,380 have been correctly entered on the debit side of the cash at bank account but have not been paid in at
the bank
What was the overdrawn balance as shown by the bank statement?
6990
$10,650
11200 ✓
$11,625

✓ 32. Which one of the following par value 12% coupon bonds experiences a price change of $23 when the market yield changes by
50 basis points ?
Points:
1/1 The bond with a duration of 4.6 years.
The bond with a duration of 5 years.
The bond with a duration of 2.7 years.
The bond with a duration of 5.15 years. ✓

✓ 33. The two components of interest-rate risk are

Points: price risk and default risk.

1/1 Reinvestment risk and systematic risk.
Call risk and price risk.
Price risk and reinvestment risk. ✓

✘ 34. 5.Inventors in developing countries are usually unable to capture the full benefit of their innovations. They therefore tend to
devote too few resources to research. Government can address this problem of under-investment in research by
Points: (i) increasing restrictions on trade.
0/1 (ii) establishing a patent system to provide inventors with exclusive control over their inventions for a period.
(iii) subsidizing the purchase of technology from other countries.
(i), (ii) and (iii) are all used. ✘
Only (i) is used.
Only (ii) is used. ✓
Only (iii) is used.
✘ 35. During an economic recovery, a lagging unemployment rate is most likely attributable to:

Points: businesses quickly rehiring workers. ✘

0/1 new job seekers entering the labor force. ✓
underemployed workers transitioning to higher-paying jobs.

✘ 36. 6. The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is

Points: horizontal. ✓
0/1 downward-sloping. ✘
upward-sloping.
vertical.

✓ 37. Suppose you have a three-security portfolio containing bonds A, B and C. The effective portfolio duration is 5.9. The market
values of bonds A, B and C are $60, $25 and $80, respectively. The durations of bonds A and C are 4.2 and 6.2, respectively
Points:
1/1 7.1.
7.4.
9.0. ✓
1.4.

✘ 38. Which of the following statements is TRUE?

Points: When a rating agency downgrades a security, the bond's price usually falls. ✓
0/1 Technical default usually refers to the issuer's failure to make interest or principal payments as scheduled in
the indenture.
✘
Default risk is important because if a bond issuer defaults, the bondholder likely loses his entire investment.
Bond ratings are determined by the market.

✓ 39. The “modified duration” used by practitioners is equal to the Macaulay duration

Points: Times the change in interest rate.

1/1 Times (one plus the bond's yield to maturity).
Divided by (one minus the bond's yield to maturity).
Divided by (one plus the bond's yield to maturity). ✓

✓ 40. Which action is a central bank least likely to take if it wants to encourage businesses and households to borrow for investment
and consumption purposes?
Points:
1/1 Sell long-dated government securities. ✓
Purchase long-dated government treasuries.
Purchase mortgage bonds or other securities.

✓ 41. Positive convexity in bond prices implies all but which of the following statements?

Points: Bond prices approach a ceiling as interest rates fall. ✓

1/1 As yields increase, changes in yield have a smaller effect on bond prices.
As yields decrease, changes in yield have a larger effect on bond prices.
The price volatility of non-callable bonds is inversely related to the level of market yields.