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You are a Financial Controller at BCD and are in the process of preparing the year-end financial statements. A member of your finance team has come to see you about her provisions balance at year-end.

She says that the Managing Director has asked her to increase the provisions balance by $1 million overall. She thinks this is because BCD has had a very good year in terms of profit, and the Managing Director wants to put some profit aside to protect against any future reductions in profit. $1 million is material to BCD.

You believe that the provisions balance was fairly stated without the additional $1 million.

Which TWO of the following would be appropriate actions in this scenario?

Options:

Discuss the matter with the Finance Director as he is your immediate line manager.

Speak to the Managing Director to explain that the level of provisions is governed by financial reporting standards.

Tell the member of your finance team to ignore the Managing Director and to leave the provisions balance as it was.

Contact the external auditors of BCD and tell them that the Managing Director wants to change the provisions balance.

Speak to the shareholders at the upcoming annual general meeting about this issue.

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Question 2

ST has in issue unquoted 7% debentures which were issued at par and are redeemable in 1 year's time. These debentures cannot be traded. The yield to maturity on these debentures has been calculated at 5%.

Which of the following would explain why the yield to maturity is lower than the coupon?

Options:

ST will benefit from the tax relief on the interest payment.

The debentures will be redeemed at a discount to their par value.

The debentures will be redeemed at their par value.

The market value of the debentures must be higher than their par value.

Question 3

MNO has calculated its return on capital employed ratio for 20X4 and 20X5 as 41% and 56% respectively.

Taking each statement in isolation, which would explain the movement in the ratio between the 2 years?

Options:

In 20X5 the average interest rate on borrowing decreased compared to 20X4.

In 20X4 an onerous contract was provided for and this provision did not change in 20X5.

In 20X5 the increase in value of MNO's head office was reflected in the financial statements.

In 20X4 an unused building was sold at a price in excess of its carrying value.

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