CIMA Financial Reporting and Analysis 3

Question 1

Which of the following best describes a finance lease under IFRS 16?

Accepted Answer

A lease where the lessee obtains substantially all risks and rewards of ownership

Answer

A lease where the lessor retains substantially all risks and rewards of ownership

Answer

A short-term lease with a term of 12 months or less

Answer

An operating lease recorded off-balance-sheet by the lessee

Question 2

Goodwill arising from a business acquisition is subject to:

Accepted Answer

Annual impairment testing with no amortization under IFRS

Answer

Straight-line amortization over its useful life

Answer

Amortization only when there is evidence of impairment

Answer

Immediate write-off against retained earnings

Question 3

The debt-to-equity ratio of a company increases when:

Accepted Answer

The company takes on additional long-term debt

Answer

The company repays long-term borrowings

Answer

The company issues new ordinary shares

Answer

Retained earnings increase due to higher profits

Question 4

Under IAS 37, a provision should be recognized when:

Accepted Answer

A present obligation exists, an outflow is probable, and a reliable estimate can be made

Answer

A possible obligation exists that depends on a future uncertain event

Answer

Management decides to set aside funds for contingent events

Answer

A legal claim has been filed but the outcome is unknown

Question 5

Vertical analysis of an income statement expresses each line item as a percentage of:

Accepted Answer

Revenue (sales)

Answer

Total assets

Answer

Net income

Answer

Opening retained earnings

Question 6

Which of the following transactions would increase a company's operating cash flow?

Accepted Answer

A decrease in inventory

Answer

A decrease in trade payables

Answer

An increase in trade receivables

Answer

An increase in prepaid expenses

Question 7

When using the price-to-earnings (P/E) ratio to value a company, a higher P/E ratio generally indicates:

Accepted Answer

Investors expect higher future earnings growth

Answer

The company is generating lower profits relative to its share price

Answer

The stock is undervalued relative to peers

Answer

The company has a higher dividend yield