Free CIMA CIMAPRA19-F03-1 Exam Dumps Questions & Answers

A young, capital intensive company has a large amount of tangible assets.
Intangibles, including brand name, are considered to be of negligible value at this time Relevant data:
* The company operates a residual dividend policy.
* The industry in which the company operates is suffering from a large amount of uncertainty at present.
Forecasting the future earnings or cashflows of the company is therefore extremely difficult
* There are very few quoted companies in the industry that are similar in size or in precisely the same business sectors.
Which method of valuation would be most suitable for this company?

• A.Net asset based using replacement cost.
• B.Discounted cash flow with a proxy company's cost of capital.
• C.Dividend valuation model with a proxy company's cost of equity.
• D.Earnings based using a proxy company's P/E ratio.

A company is based in Country Y whose functional currency is Y$. It has an investment in Country Z whose functional currency is Z$.
This year the company expects to generate Z$ 10 million profit after tax.
Tax Regime:
* Corporate income tax rate in country Y is 50%
* Corporate income tax rate in country Z is 20%
* Full double tax relief is available
Assume an exchange rate of Y$ 1 = Z$ 5.
What is the expected profit after tax in Y$ if the Z$ profit is remitted to Country Y?

• A.Y$ 1.25 million
• B.Y$ 31.25 million
• C.Y$ 4.00 million
• D.Y$ 1.00 million

BBA is a wholly owned subsidiary of AAB BBA operates in country B where the currency is the B$.
The following is an extract from BBA's financial statements at 31 December 20X1:

The following Information is relevant:
" The bonds were trading at $110 per $100 on 31 December 20X1. "Operating profit of BBA for the year ended 31 December 20X1 was S15 million
* The P/E ratio is 8
* Corporate income tax rate is 20%.
The tax authorities m country B Implemented thin capitalisation rules based on the level of gearing of the subsidiary, calculated as book value o( debt lo book value of equity The cut-off point for gearing used by the tax authorities for a company to be thinly capitalised is 75%.
Which of the following statements is correct as at 31 December 20X1?

• A.Gearing Is 71.43%. thin capitalisation rules are not breached
• B.Gearing is 83.33%. thin capitalisation rules are breached
• C.Gearing is 250%. thin capitalisation rules are breached
• D.Gearing is 83.33%. thin capitalisation rules are not breached

Company A plans to diversify by a cash acquisition of Company B an unlisted company in another country (Country B) which operates in a different industrial sector Company A already manufactures its product in Country B and has a loan denominated in Country B's currency Company A regularly suffers foreign exchange losses due to volatility in the exchange rate between the two countries' currencies in recent years.
Which THREE of the following appear to be be valid justifications of this diversification decision?

• A.The diversification into another product market will lower business risk
• B.The diversification will give Company A greater protection from translation risk
• C.The diversification will give Company A protection from political risk
• D.The diversification will give Company A greater protection from transaction risk.
• E.The diversification will enable Company A to enjoy production scale economies

An entity prepares financial statements to 31 December each year. The following data applies:
1 December 20X0
* The entity purchased some inventory for $400,000.
* In order to protect the inventory against adverse changes in fair value the entity entered into a futures contract to sell the inventory for a fixed price on 31 January 20X1.
* The entity designated this contract as a fair value hedge of the value of the inventory.
31 December 20X0
* The inventory had a fair value of $480,000 and the futures contract had a fair value of $75,000 (a financial liability).
What will be the impact on the statement of profit or loss and other comprehensive income for the year ended
31 December 20X0 in respect of the change in the value of the inventory and the futures contract?

• A.A loss of $75,000 will be recognised in profit or loss.
• B.A net gain of $5,000 will be recognised in profit or loss.
• C.A net gain of $5,000 will be recognised in other comprehensive income.
• D.A loss of $75,000 will be recognised in other comprehensive income.