CIS September 2012 Exam Diet
Examination Paper 2.1:
Financial Accounting and Financial Statement
Analysis
Economics and Financial Markets
Quantitative Analysis and Statistics
Financial Accounting and Financial Statement Analysis (1 – 18)
1.
Which of the following statements are correct?
I.
Under the consistency concept items must always be treated in the same way
even if circumstances change.
II. According to the money measurement concept only items which can be
objectively expressed in monetary terms should be included in the financial
statements.
III. The prudence concept involves an exercise of caution when making estimates in
financial statements. It therefore ensures that assets and income are not
overstated and losses and liabilities are not understated.
IV. According to the materiality concept an item is material if its omission or
misstatement might reasonably be expected to influence the economic decisions
of the users.
A.
B.
C.
D.
2.
I, II and III only.
II, III and IV only.
All of the above.
None of the above.
The balance sheet of ABC Limited as at 1 October 2010 included the following:
Cost
Motor vehicles
98,000
Accumulated
Depreciation
31,360
Net Book Value
66,640
During the year, the company purchased a new van for a cash payment of N15,400
plus the trade in allowance on an old van which had cost N14,000 and had a net
book value at 1 October 2010 of N6,160.
The company made a loss of N1,680 on the trade in and the total depreciation
charge on motor vehicles for the year was N20,100.
What is the net book value of motor vehicles as at 30 September 2011?
A. N55,780
B. N56,340
C. N60,260
D. N68,100
3.
Over the last financial year, the purchase price of Paul’s main manufacturing
components has been falling consistently. If he were to use weighted average
inventory valuation method as compared to a first in, first out (FIFO) method this
would result in:
A. A lower inventory asset on the balance sheet but higher cost of sales.
B. A lower inventory asset on the balance sheet and lower cost of sales.
C. A higher inventory asset on the balance sheet and higher cost of sales.
D. A higher inventory asset on the balance sheet but lower cost of sales.
4.
Which two of the following items must be disclosed in the note to the financial
statements for intangible assets?
I. The useful lives of intangible assets capitalised in the financial statements.
II. A description of the development projects that have been undertaken during the
period.
III. A list of all intangible assets purchased or developed in the period.
IV. Impairment losses written off intangible assets during the period.
A.
B.
C.
D.
I and IV only.
II and III only.
III and IV only.
I and II only.
5.
Prior to the financial year end of 31 July 2009, XYZ Limited has received a claim of
N100,000 from a supplier for providing poor quality goods which have damaged the
supplier’s plant and equipment. XYZ Limited’s lawyers have stated that there is a
20% chance that XYZ will successfully defend the claim.
Which of the following is the correct accounting treatment for the claim in the
financial statements for the year ended 31 July 2009?
A. XYZ should neither provide for nor disclose the claim.
B. XYZ should disclose a contingent liability of N100,000
C. XYZ should provide for the expected cost of the claim of N100,000
D. XYZ should provide for an expected cost of N20,000
6.
At 30 November 2010 the net book value of the fixed assets of Reynard Limited was
N3,570,000 and the tax written down value was N2,450,000. The provision for
deferred tax brought forward was N250,000. The tax rate is 22%.
What should be reported in the profit and loss account in respect of deferred tax?
A. A credit of N3,600
B. A charge of N3,600
C. A credit of N246,400
D. A charge of N246,400
7.
At the beginning of the year, PQR International Limited reported a book value for
equity in the amount of N23.5 million. If during the year profit after tax was N2.7
million and the company paid a dividend of N0.5 million, what would be the best
estimate of return on equity for the year (using average equity approach)?
A. 9.36%
B. 10.76%
C. 11.49%
D. 10.98%
8.
What does it imply for a firm to have a higher quick (or acid test) ratio than the
industry average?
A. The firm has a higher P/E ratio than other firms in the industry.
B. The firm is more likely to avoid insolvency in the short run than other firms in
the industry.
C. The firm may be less profitable than other firms in the industry.
D. (B) and (C) above.
9.
According to IFRS, which of the following statements regarding the translation of
foreign currency transactions is false?
A. In the income statement, depreciation and amortization are converted at the
closing rates.
B. All non-monetary items in the balance sheet which are carried at historical cost
are reported using the exchange rate at the date of transaction.
C. All non-monetary items in the balance sheet which are carried at fair value are
translated using the exchange rate which existed when the value was
determined.
D. All monetary items in the balance sheet are reported at closing rates.
10. What is ‘value in use’ as defined in IFRS 2?
A. The amount by which an asset could be exchanged or liability settled in an arm’s
length transaction by willing parties.
B. The net book value of a company’s assets.
C. The ‘real value’ a company places on its assets.
D. The net present value of the future cash flows derivable from an asset.
11. Large Limited purchased 80% of the net assets of the business of Small Limited on
31 March 2009 for N1,500,000. The statement of financial position of Small Limited
on 31st of March 2009 disclosed net assets of N1,310,000 (including goodwill of
N100,000). The fair value of the tangible non-current assets of Small Limited was
more than the book value by N80,000; all other items were stated at fair value.
Calculate the goodwill arising on the purchase of the business of Small Limited.
A. N110,000
B. N260,000
C. N320,000
D. N468,000
12. A firm has a higher asset turnover ratio than the industry average, which implies
that:
A. The firm is more likely to avoid insolvency in the short run than other firms in
the industry.
B. The firm is more profitable than other firms in the industry.
C. The firm is utilizing assets more efficiently than other firms in the industry.
D. The firm has higher spending on new fixed assets than other firms in the
industry.
Use the information below to answer questions 13 to 16:
The table below shows selected data from XYZ Limited’s financial statements:
2010
2011
Sales
9,800
10,500
COGS
6,100
6,700
Purchases
6,000
6,600
Inventory
2,400
2,370
Accounts receivable
3,900
4,400
Accounts payable
2,300
2,400
13. What is XYZ’s receivables collection period for both 2010 and 2011?
(Assume 365 days in a year).
A.
B.
C.
D.
2010
40 days
145 days
233 days
237 days
2011
42 days
153 days
239 days
243 days
14. What is XYZ’s inventory turnover for 2010 and 2011?
A.
B.
C.
D.
2010
2.10
2.54
3.43
4.08
2011
2.33
2.83
3.58
4.43
15. What is the working capital cycle for XYZ in 2011 (assume 365 days in a year)?
A. 42 days.
B. 101 days.
C. 149 days.
D. 243 days.
16. You are told that XYZ’s payables period dropped from 140 days in 2010 to 133 days
in 2011. What is the most likely impact of this on the liquidity position of XYZ
Limited?
A. It will result in an improvement in the liquidity position.
B. It will impact the liquidity position negatively.
C. It has no impact on the liquidity position.
D. None of the above.
17. Which of the following should appear in a company’s statement of changes in equity?
I. Total comprehensive income for the year.
II. Amortisation of capitalised development costs.
III. Surplus on revaluation of non-current assets.
A.
B.
C.
D.
I and II only.
I and III only.
II and III only.
All of the above.
18. Which of the following lists comprises the qualitative characteristics that financial
information should possess according to the IASB's Framework for the Preparation
and Presentation of Financial Statements?
A. Relevance, reliability, comparability, understandability.
B. Relevance, reliability, prudence, understandability.
C. Relevance, reliability, prudence, accruals.
D. Relevance, reliability, prudence, accruals, understandability.
Economics and Financial Markets (19 – 31)
19. When the Central Bank decides to buy government bonds, the demand for
government bonds will:
A. Decrease, bond prices will decrease and the interest rate will decrease.
B. Increase, bond prices will increase and the interest rate will decrease.
C. Increase, bond prices will increase and the interest rate will increase.
D. Decrease, bond prices will increase and the interest rate will decrease.
20. A nation may be able to correct or eliminate a persistent balance of payments deficit
by:
A. Lowering the barriers on imported goods.
B. Reducing the international value of its currency.
C. Expanding its national income.
D. Reducing its official reserves.
21. The policy of intervening in the exchange market to offset temporary fluctuations in
the exchange rate is referred to as a:
A. Flexible exchange rate system.
B. Fixed exchange rate system.
C. Managed or dirty float.
D. Arbitrated float.
22. The primary reason commercial banks must keep required reserves on deposit at the
Central Bank is to:
A. Protect the deposits in the commercial bank against losses.
B. Provide the means by which cheques drawn on the commercial bank and
deposited in other commercial bank can be collected.
C. Add to the liquidity of the commercial bank and protect it against a “run” on the
bank.
D. Provide the Central Bank with a means of controlling the lending ability of the
commercial bank.
23. The use of exchange controls to eliminate a nation’s balance of payments deficit
results in decreasing the nation’s ___________
A. Imports.
B. Exports.
C. Price level.
D. Income.
24. As
A.
B.
C.
D.
disposable income decreases, ceteris paribus _________
Both consumption and saving increase.
Consumption increases and saving decreases.
Consumption decreases and saving increases.
Both consumption and saving decrease.
25. What is the opportunity cost of greater capital formation?
A. Greater consumption in the current period.
B. Smaller consumption in the current period.
C. Opportunity cost is zero for developed nations.
D. Slower economic growth in the future.
26. If two products, A and B, are complements, then _________
A. An increase in the price of A will decrease the demand for B.
B. An increase in the price of A will increase the demand for B.
C. An increase in the price of A will have no significant effect on the price of B.
D. A decrease in the price of A will decrease the demand for B.
27. Under what situation does Marshall-Learner condition hold?
A. When net exports rise then the domestic currency depreciates.
B. When net exports fall then the domestic currency depreciates.
C. When net export does not respond to domestic currency depreciation.
D. When net exports rise then the domestic currency appreciates.
28. Which of the following is not a supply factor in economic growth?
A. An expansion in purchasing power.
B. An increase in the economy’s stock of capital goods.
C. More natural resources.
D. Technological progress.
29. Who would be hurt by unanticipated inflation?
A. Those living on incomes with cost-of-living adjustments.
B. Those who find prices rising less rapidly than their nominal incomes.
C. Those who lent money at a fixed interest rate.
D. Those who became debtors when prices were lower.
30. The slope of the indifference curve measures the __________
A. Slope of the budget line.
B. Total utility of a good.
C. Space on an indifference map.
D. Marginal rate of substitution.
31. Which of the following conditions gives the most efficient use of resources?
A. P = MC = Minimum ATC
B. P = AR = MR
C. P = MR = Minimum MC
D. TR = MC = MR
Quantitative Analysis and Statistics (32 – 40)
32. A project requires an initial investment of N10,000,000 with a life span of 2 years. If
the IRR from the project is projected to be 10% and the first-year cash flow is
N3,000,000, what is the expected cash flow in year 2?
A. N2,000,000
B. N2,727,272
C. N3,592,849
D. N8,800,000
33. What is the inverse of this matrix:
A.
B.
C.
D.
-3
4
4
5
3
4
-4
5
-4
3
-5
4
3
-4
4
-5
-5 4
-4 3
?
34. A monopolist has the following cost and demand functions: Total Cost:
TC=2000+70Q, Demand=Q=1000-2P. What is the maximum profit that the
monopolist can possibly make?
A. N94,450
B. N90,450
C. N100,340.00
D. N100,430.00
35. The Quality Control Analyst of ABC Limited predicted that 10% of the production of
the firm will be defective. If a sample of 10 articles were randomly selected, what is
the probability that no article was found to be defective?
A. 0.4520
B. 0.4537
C. 0.3487
D. 0.5420
36. A mutual fund company's selection of funds today includes only those that have been
successful in the past. All closed funds are excluded in order to hide performance.
Such data collection is likely to be affected by:
A. Survivorship bias.
B. Data mining bias.
C. Sample selection bias.
D. Survey bias.
37. The following data were obtained for a particular consumer item:
Laspeyre’s index = 97.38
Fisher’s Ideal index = 97.64
What is the Paasche’s index?
A. 97.90
B. 97.51
C. 89.90
D. 99.51
38. You are given the following probability distribution for annual sales of a company on
the Nigerian stock exchange:
Probability
Sales( bn)
0.2
0.3
275
250
0.3
0.1
0.1
200
190
180
What is the expected standard deviation of the company’s sales?
A. 26.45
B. 34.58
C. 24.45
D. 33.47
39. Which of the following can be regarded as a “goodness of fit test”?
A. Chi-Square test.
B. ANOVA.
C. Poisson distribution test.
D. Regression slope test.
40. A study was conducted to estimate urban car travel time between locations in two
cities. Data was collected for passenger cars and a simple linear regression was
conducted using data sets for different types of vehicles, where Y=urban travel time
in minutes and X=distance between locations in kilometers. The following regression
equation was obtained:
Y=2.50+1.93x
R2=0.758
What is the estimated increase in travel time for a commuter planning to move 8 km
farther from his workplace (to the nearest minute)?
A. 31 minutes.
B. 15 minutes.
C. 0.154 hours.
D. 1.154 hours.
Total = 40 marks
Question 2 - Financial Accounting and Financial Statement Analysis
A colleague says to you, “Impairing an intangible asset reduces profit but not cash flow”.
Briefly explain:
2(a) Why this statement might be true.
(1½ marks)
2(b) Why this statement might be wrong.
(1½ marks)
Question 3 - Economics and Financial Markets
State and show graphically the relationship between interest rate (r) and income (y) in the
context of IS and LM curves.
(3 marks)
Question 4 - Quantitative Analysis and Statistics
What are the four composite forces affecting Time Series data? State two models
incorporating these forces.
(4 marks)
Question 5 - Financial Accounting and Financial Statement Analysis
The net assets (non-current assets plus current assets less current liabilities) of a company
at the start of a period are N6,000,000. During the period the following transactions occur:
Cash received from debtors of N550,000.
Sale of stock for N900,000 on credit (stock cost N750,000).
A 5 year bank loan of N500,000 is arranged and the cash received.
An unexpected bad debt of N50,000 is written off.
5(a) Work out the new figure for net assets.
(3 marks)
5(b) A company has a falling current ratio.
5b1) Explain why this might be a concern for an investor.
(2 marks)
5b2) Explain why this might be seen as good management.
(2 marks)
5(c) The following information is extracted from the accounts of a quoted company:
N
Profit before interest and tax
75,000
Interest payable
30,000
Profit before tax
45,000
Tax payable
15,000
Profit for the year
30,000
Total dividend for the year:
10,000
5c1) Calculate the interest cover and dividend cover ratios for the company.
(2 marks)
5c2) You later discover that the company had capitalized interest of N25,000 in the
year (therefore, excluded from the extracts above).
Required:
Revise your analysis given this extra information.
5c3) Briefly comment on your results in (5c1) and (5c2) above.
(2 marks)
(2 marks)
5(d) For each item below, mark “X” to show whether it has an impact on cash flows and,
if yes, on which category of cash flows:
Item
No impact on
cash flows
Impact on
cash flows
from
operating
activities
Impact on
cash flows
from investing
activities
Impact on cash
flows from
financing
activities
Acquisition of a
subsidiary
Impairment of
goodwill
Payment of
dividends to
shareholders
Sale of a fixed asset
Increase of share
capital by issuing
bonus shares
Payments received
from customers
Increase of the
allowance for bad
debts
Payments to
suppliers
Granting a loan to
employees
Redemption of a
mortgage
(5 marks)
5(e) Parent Limited bought 60% of the shares of Child Limited for N100,000 when Child
Limited’s retained earnings were N40,000. As at December 31, 2011 the respective
net assets positions were as follows:
Share capital
Share premium
Retained earnings
Parent Ltd
N
70,000
50,000
90,000
Child Ltd
N__
80,000
70,000
110,000
Calculate the amount of retained earnings that would be shown in the Consolidated
Statement of Financial Position of Parent Limited’s Group as at December 31, 2011.
(4 marks)
Question 6 - Economics and Financial Markets
“Cyclical unemployment occurs in the recession phase of the business cycle”.
6(a) With the aid of appropriate diagram, identify and characterize the four phases of a
typical business cycle.
(9 marks)
6(b) Account for the recessionary situation and the associated type of unemployment
(4 marks)
6(c) What monetary policy measures would you recommend to make the recession shortlived?
(4 marks)
Question 7 - Quantitative Analysis and Statistics
7(a) The following table indicates the marks scored by 100 candidates in the Quantitative
Analysis paper of a professional examination.
Marks (%)
25 – 34
35 – 44
45 – 54
55 – 64
65 – 74
75 – 84
85 – 94
Total
Frequency (No. of candidates)
3
10
21
33
20
8
5
100
7a1) Find the probability that a randomly selected candidate scored more than 54
percent in the examination.
(3 marks)
7a2) Find the probability that a randomly selected candidate scored between 45 and
75 percent.
(3 marks)
7a3) Obtain the cumulative frequency of the marks distribution above.
(2 marks)
7a4) If the best 10% of the candidates received the President of the Institute’s
Award, determine the minimum mark a candidate should get to qualify for the
award?
(3 marks)
END OF PAPER
FORMULAE
Regression Analysis:
Y = a+bx
b= n∑xy-∑x∑y
n∑x2-(∑x)2
a= ∑y _ b∑x
n
n