CIMA Advanced Financial Reporting Sample Questions:

1. How would KL account for its investment in MN in its consolidated financial statements for the year to
31 December 20X9?

A) Joint arrangement
B) Subsidiary
C) Joint venture
D) Financial asset

2. GG's gearing is currently 50% compared to the industry average of 40% (both measured as debt/equity).
GG's debt is all in the form of a single bank loan that is repayable in five years' time. The directors of GG are seeking to raise finance for a new project and they are considering an additional bank loan from the same bank.
Which of the following would prevent the bank from lending the finance for the project in the form of a new bank loan?

A) The revaluation of GG's property that shows an increase in its value since the existing bank loan was taken out.
B) A projected decrease in interest cover that would breach a covenant on the existing loan.
C) A covenant on the existing bank loan that restricts the level of dividend that can be paid.
D) A projected lack of profits to be able to claim tax relief on the additional interest arising from the new loan.

3. LM acquired 15% of the equity share capital of ST on 1 January 20X6 for $18 million. LM acquired a further 50% of the equity share capital of ST for $50 million on 1 January 20X7 when the fair value of ST's net assets was $82 million. The original 15% investment in ST had a fair value of $20 million at 1 January 20X7. The non controlling interest in ST was measured at its fair value of $30 million at the date control in ST was acquired.
Calculate the goodwill arising on the acquisition of ST that LM included in its consolidated financial statements at 31 December 20X7.
Give your answer to the nearest $ million.
$ ? million

4. Which of the following would cause a deferred tax balance to be included in the statement of financial position for an entity?

A) The acquisition of land for which there is no tax depreciation.
B) The acquisition of plant and equipment a year ago where the tax depreciation rate is different to the accounting depreciation rate.
C) Expenses in the statement of profit or loss which are not allowable for tax creating a permanent difference.
D) Impairment of goodwill that arose on the acquisition of a subsidiary entity.

5. DE acquired 10% of the equity shares of KL on 31 December 20X2.
A further 50% of the equity shares of KL were acquired by DE on 1 January 20X4.
Which THREE of the following would be part of the process for recording the second purchase of shares?

A) The goodwill calculated at 31 December 20X2 being revalued at 1 January 20X4.
B) Goodwill being calculated at 1 January 20X4 for the first time.
C) Net assets at 1 January 20X4 being compared to the purchase consideration and a transfer to equity made.
D) A 50% non controlling interest will be shown in the consolidated financial statements.
E) The 10% investment being revalued to fair value at 1 January 20X4.
F) Assets, liabilities, income and expenses being fully consolidated from 1 January 20X4.

Solutions: