FA - Mock Exam 5

Chapter 23-26

This paper is divided into two sections:

Section A – ALL 35 questions are compulsory and MUST be attempted

Section B – BOTH questions are compulsory and MUST be attempted

Time allowed 2 hours

* Required

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2. Name and surname *

3. Group name *

Section A

4. 1. Which of the following statements is true? 1 point

Mark only one oval.

Ratios based on historical data can predict the future performance of an entity

An entity's management will not assess an entity's performance using financial

ratios

The interpretation of an entity's financial statements using ratios is only useful for
potential investors

The analysis of financial statements using ratios provides useful information when
compared with previous performance or industry averages
Use the following information to answer items 2 - 4:

At December 31 a company's records show the following information:

5. 2. The company's working capital is: 1 point

6. 3. The company's current ratio is: 1 point

Mark only one oval.

1.0 : 1

2.0 : 1

2.1 : 1

7. 4. The company's quick ratio is: 1 point

Mark only one oval.

0.7 : 1

1.0 : 1

2.0 : 1
8. 5. The debt to equity ratio is computed as: (Long term loans ÷ __________) x 1 point
100

Mark only one oval.

Equity

Capital Employed

Current Assets

Current Liabilities

Use the following information to answer items 6 - 9:

For its most recent year a company had Sales (all on credit) of $830,000 and Cost
of Goods Sold of $525,000. At the beginning of the year, its Accounts Receivable
were $80,000 and its Inventory was $100,000. At the end of the year, its Accounts
Receivable were $86,000 and its Inventory was $110,000.

9. 6. The inventory turnover ratio for the year was: 1 point

Mark only one oval.

4.8

5.0

7.9

10. 7. The accounts receivable turnover ratio for the year was: 1 point

Mark only one oval.

6.3

7.5

10.0
11. 8. On average how many days of sales were in Accounts Receivable during 1 point
the year?:

Mark only one oval.

27

37

49

12. 9. On average how many days of sales were in Inventory during the year? 1 point

Mark only one oval.

14

46

73

13. 10. At 1 January 20X4 Yogi acquired 80% of the share capital of Bear for 1 point
$1,400,000. At that date the share capital of Bear consisted of 600,000
equity shares of $0.50 each and its reserves were $800,000. The fair
value of the non‐controlling interest was valued at $300,000 at the date of
acquisition.In the consolidated statement of financial position of Yogi and
its subsidiary Bear at 31 December 20X8, what amount should appear for
goodwill? ('000)

14. 11. Select the correct statement with regards to intragroup balances and 1 point

transactions during consolidation:

Mark only one oval.

Intragroup balances and transactions must be eliminated

Intragroup balances and transactions must be eliminated to the extent of non-

controlling interest

Intragroup balances and transactions must be eliminated in proportion to the

percentage of effective ownership

Intragroup balances and transactions do not have to be eliminated

15. 12. According to IFRS 10, the basis for consolidation is … 1 point

Mark only one oval.

Regulatory requirements

Size of share capital of the investee

Control

Number of employees

16. 13. According to IFRS 10, which of the following statements is true? 1 point

Mark only one oval.

A parent entity is required to consolidate its subsidiaries only for internal reporting
purposes.

A parent entity is encouraged but not required to consolidate its subsidiaries

A parent entity is required to consolidate its subsidiaries.

A parent need not consolidate its subsidiaries if the businesses of the subsidiaries
are different andnot related to the business of the parent

17. 14. Non-controlling interests shall be presented in the consolidated 1 point

statement of financial position:

Mark only one oval.

Within equity, separately from the equity of the owners of the parent

Within equity, not distinguished from the equity of the owners of the parent

As a mezzanine item between liabilities and equity

Any of these as a matter of accounting policy choice

18. 15. Which of the following statements is true? 1 point

Mark only one oval.

Consolidation is performed by adding line by line similar items of assets, liabilities,

income and expenses of both theparent and its subsidiaries.

In a consolidated statement of financial position prepared immediately after a

business combination, the consolidatedtotal equity is always equal to the parent’s total
equity.

The amount of goodwill is not affected when non-controlling interest is measured

at fair value rather than at the non-controlling interest’s proportionate share in the net
assets of the acquiree.

All of these statements are true

19. 16. A "group" for consolidation purposes is: 1 point

Mark only one oval.

An entity that obtains control over entities or businesses

An entity, including an unincorporated entity such as partnership that is controlled

by another entity

An entity that has one or more subsidiaries

A parent and all its subsidiaries

20. 17. It is that portion of the profit or loss and net assets of a subsidiary 1 point
attributable to equity interest that are not owned directly orindirectly
through subsidiaries by the parent.

Mark only one oval.

Subsidiary interest

Residual interest

Controlling interest

Non-controlling interest
21. 18. It is the entity that has the controlling financial interest 1 point

Mark only one oval.

Parent

Affiliate

Associate

Investor

22. 19. X owns 50% of Y's voting shares. The board of directors consists of 6 1 point

members. X appoints four of them and Y appoints the other two. Does X
have control over Y?

Mark only one oval.

No, X owns only 50% of the entity's shares and therefore does not have control

No, control is equally split between X and Y

Yes, however X holds 50% of the voting power, it appointsthe majority of directors

No, control can be exercised only through voting power

Use the following information to answer items 20 - 21:

23. 20. On January 1, 2011, Ritt Corp. purchased 80% of Shaw Corp.'s $1 par 1 point
common stock for $975,000. On this date, thecarrying amount of Shaw's
net assets was $1,000,000. The fair values of Shaw's identifiable assets
and liabilities were thesame as their carrying amounts except for plant
assets (net) with fair values of $100,000 in excess of their carrying
amount.The fair value of the non-controlling interest in Shaw on January 1,
2011, was $250,000. For the year ended December 31,2011, Shaw had net
income of $190,000 and paid cash dividends totaling $125,000. In the
December 31, 2011 consolidatedstatement of financial position, non-
controlling interest should be reported at: ('000)
24. 21. The net profit margin 1 point

Mark only one oval.

Is less than or equal to the operating profit margin.

Is less than or equal to the gross profit margin.

Is greater than the operating profit margin.

Both selections (a) and (b) are correct sentence competions

25. 22. The CBA Company has an operating profit margin of 5% and a total 1 point

asset turnover of 5 times. What is CBA's return on capital employed?

Mark only one oval.

1%

5%

10%

25%

26. 23. A company with a debt-to-equity ratio of 2.5 and $7 million of assets 1 point
has debt of: ('000)

27. 24. A current ratio of 2.0 1 point

Check all that apply.

tells us that current assets are twice current liabilities.

is good.
indicates a problem with liquidity.
is always greater than the quick ratio for a firm
28. 25. Indicates how quickly a firm's credit accounts are being collected and 1 point

is a good measure of how efficiently a firm is managing its accounts

receivable.

Mark only one oval.

Rate of turnover of accounts receivable

Efficiency ratios

Working capital

Current ratio

29. 26. Panini Corporation owns 85% of the outstanding voting stock of 1 point

Strathmore Company and Malone Corporation owns the remaining 15% of

Strathmore's voting stock.On the consolidated financial statements of
Panini Corporation and Strathmore,Malone is

Mark only one oval.

An affiliate.

A noncontrolling interest.

An equity investee.

A related party.

30. 27. On June 1,2014,Puell Company acquired 100% of the stock of Sorrell 1 point

Inc.On this date,Puell had Retained Earnings of $100,000 and Sorrell had
Retained Earnings of $50,000.On December 31,2014,Puell had Retained
Earnings of $120,000 and Sorrell had Retained Earnings of $60,000.The
amount of Retained Earnings that appeared in the December 31,2014
consolidated balance sheet was: ('000)
31. 28. Perth Corporation acquired a 70% interest in Sansone Company for 1 point

$1,600,000 when Sansone had no liabilities.The book values and fair values of
Sansone's assets were: ('000)

32. 29. On January 1,2014,Packaging International purchased 90% of Shipaway 1 point

Corporation's outstanding shares for $135,000 when the fair value of

Shipaway's net assets were equal to the book values.The balance sheets of
Packaging and Shipaway Corporations at year-end 2013 are summarized as
follows:
33. 30. On July 1,2014, when Salaby Company's total stockholders' equity was 1 point

$360,000, Pogana Corporation purchased 280,000 shares of Salaby's

common stock at $3 per share. Salaby had 80,000 shares of common
stock outstanding after the purchase by Pogana, and the book value of
Salaby's net assets on July 1,2014 was equal to the fair value. On a
consolidated balance sheet prepared at July 1,2014, goodwill would be:
('000)

34. 31. In the preparation of consolidated financial statements,which of the 1 point

following intercompany transactions must be eliminated as part of the
preparation of the consolidation working papers?

Mark only one oval.

All revenues, purchases, gains, losses, receivables, and payables

All revenues, purchases, gains, and losses but not receivables and payables

Receivables and payables but not revenues, purchases, gains,and losses

Only sales revenue and cost of goods sold

35. 32. In the consolidated income statement of Wattlebird Corporation and 1 point

its 85% owned Forest subsidiary,the noncontrolling interest share was

reported at $45,000.Assume the book value and fair value of Forest's net
assets were equal at the acquisition date.What amount of net income did
Forest have for the year?

Mark only one oval.

$52,941

$38,250

$235,000

$300,000
36. 33. Pardo Corporation paid $140,000 for a 70% interest in Spedeal Inc.on 1 point

January 1,2014,when Spedeal had Capital Stock of $50,000 and Retained

Earnings of $100,000.Fair values of identifiable net assets were the same
as recorded book values.During 2014,Spedeal had income of
$40,000,declared dividends of $15,000,and paid $10,000 of dividends.On
December 31,2014,the consolidated financial statements will show:

Mark only one oval.

Investment in Spedeal account of $170,000.

Investment in Spedeal account of $165,000.

Consolidated goodwill of $50,000.

Consolidated dividends receivable of $5,000.

37. 34. In the business world we need to be able to measure ________ 1 point

performance and predict ________ performance if we want to deliver

positive results.

Mark only one oval.

Past; future

Past; present

Present; future

Present; past

38. 35. Ace Engineering Inc.has a operating profit margin of 25%, an asset 1 point

turnover ratio of 2. What is the firm's ROCE?(%)

 The following are the draft statements of financial position of Eric and its subsidiary
Ronnie at 31 December 20X6

Eric
Ronnie
$
$

Non-current assets
Tangible assets 157,000
82,000
Investments: Ronnie 58,000
Others 12,000

Current assets
Cash at bank and in hand 8,000
25,150
Trade receivables 96,800
46,900
Inventory 73,200
35,200

Total Assets 405,000

189,250

Equity
Share capital($1 shares) 250,000
50,000
Share premium
6,250
Revaluation surplus
15,000
Section Retained earnings 32,000
B 40,000

Total Equity 282,000

111,250

Non-current liabilities: 6% Loan

20,000

Current Liabilities
Trade payables 123,000
58,000

Total Equity and Liabilities 405,000

189,250

Notes:
1) Eris acquired 40,000 shares in Ronnie on 1 January 20X5 for a cost of $58,000 when
the balances on Ronnie's reserves were:
$
Share premium account 6,250
Revaluation surplus -
Retained earnings 10,000

2)Non-controlling interest is valued at a fair value, which was $14,500 on 1 January 20X5

3) At 31 December 20X6 Ronnie's inventory included $12,000 of goods purchased from

Eric. Eric earns a gross profit of 25% on sales.

4) At 31 December 20X6 Eric's trade receivables include $28,000 due from Ronnie and
Ronnie's trade payables include $28,000 due to Eric.
39. Task 1 (6 marks) Indicate if the following will be included in or excluded 6 points

from the consolidated statement of financial position of Eric as at 31

December 20X5.

Mark only one oval per row.

Included in Excluded from

Ordinary shares of Eric

Current assets of Eric

Pre-acquisition retained earnings of Ronnie

Ordinary shares of Ronnie

Investment in Ronnie

Current assets of Ronnie

40. Task 2.1 (2 marks) What is the consolidated retained earnings for the year 2 points

in the consolidated statement of financial position for the year ended 31

December 20X5?

41. Task 2.2 (1 marks) What should the tangible non-current assets figure be in 1 point

the consolidated statement of financial position as at 31 December 20X5?

42. Task 2.3 (2 marks) What is the non-controlling interest for the year in the 2 points

consolidated statement of financial position for the year ended 31

December 20X5?

Task 3 (6 marks) Complete the calculation for goodwill at acquisition.

43. Task 3.1 (1 mark) Cost of investment 1 point

44. Task 3.2 (1 mark) Add: Fair value of non-controlling interest 1 point

45. Task 3.3 (1 mark) Less: Fair value of Ronnie's net assets: 1 point

46. Task 3.4 (1 mark) Goodwill at acquisition 1 point

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