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Which of the following should be accounted for in the consolidated financial statements of Company A using equity

accounting?

1 An investment in 51% of the ordinary shares of W Co

2 An investment in 20% of the preference (non-voting) shares of X Co

3 An investment in 33% of the ordinary shares of Y Co 4 An investment in 20% of the ordinary shares of Z Co, and an

agreement with other shareholders to appoint the majority of the directors to the board of Z Co

A

1 and 4 only

B

2 only

C

3 only

D

3 and 4 only

Chapter23Introductiontoconsolidatedfinancialstatements

Investments in associates are accounted for using equity accounting. An investment is an associate if the investor has significant influence over the investee. Significant influence is presumed if the investor owns at least 20% of the voting equity of the

investee. Therefore 2 is not an associate. 1 and 4 are subsidiaries as Company A investor has control over them.

多做几道

Which of the following is a ratio which is used to measure how much a business owes in relation to its size?

A

Asset turnover

B

Profit margin

C

Gearing

D

Return on capital employed

A business operates on a gross profit margin of 331/3%. were $680. Gross profit on a sale was $800, and expenses

What is the net profit margin?

A

3.75%

B

5%

C

11.25%

D

22.67%

A company has the following details extracted from its statement of financial position：

$'000

Inventories 1,900

Receivables 1,000

Bank overdraft 100

Payables 1,000

The industry the company operates in has a current ratio norm of 1.8. Companies who manage liquidity well in this industry

have a current ratio lower than the norm.

Which of the following statements accurately describes the company’s liquidity position?

A

Liquidity appears to be well managed as the bank overdraft is relatively low

B

Liquidity appears to be poorly-controlled as shown by the large payables balance

C

Liquidity appears to be poorly-controlled as shown by the company’s relatively high current ratio

D

Liquidity appears to be poorly-controlled as shown by the existence of a bank

Why is analysis of financial statements carried out?

A

So that the analyst can determine a company’s accounting policies

B

So that the significance of financial statements can be better understood through comparisons

with historical performance and with other companies

C

To get back to the ‘real’ underlying figures, without the numbers being skewed by the

requirements of International Financial Reporting Standards

D

To produce a report that can replace the financial statements, so that the financial statements

no longer need to be looked at

Which of the following transactions would result in an increase in capital employed?

A

Selling inventory at a profit

B

Writing off a bad debt

C

Paying a payable in cash

D

Increasing the bank overdraft to purchase a non-current asset

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