[FR/F7: Tài liệu ôn thi] Part C: Analysing and interpreting the financial statements of single entities and groups

Part C sẽ ôn lại 8 dạng bài tập quan trọng môn Financial Reporting (F7) với chủ đề Analysing and interpreting the financial statements of single entities and groups.

I.  Tổng quan

Chủ đề	Dạng bài	Câu hỏi tương ứng
		Trắc nghiệm	Tự luận
Calculating and interpretation of accounting ratios and trends	1. Performance ratio	Câu 1,2
	2. Liquidity ratio	Câu 3
	3. Gearing ratio	Câu 4
	4. Efficiency ratio	Câu 5
	5. Investor ratio	Câu 6
Limitations of financial statements and interpretation techniques	1. Limitations of financial statements	Câu 1,2
	2. Limitations of ratio analysis	Câu 3,4
Specialised, not-for-profit, and public sector entities	1. Specialised, not-for-profit, and public sector entities	Câu 1 - 3
Reference: BPP ACCA F7 - Financial Reporting (FR) StudyText

II. Dạng bài tập chi tiết

1. Calculating and interpretation of accounting ratios and trends

Ref: Tóm tắt kiến thức Topic 1: Calculating and interpretation of accounting ratios and trends

Mức Độ: Quan trọng

1.1. DẠNG 1: Performance ratio

Câu 1: Return on capital employed

Learning outcome: Nắm được cách tính và phân tích ROCE

Question: 

Alco and Saleco are both food retailers. They are both showing a return on capital employed (ROCE) figure of 10% for the current year. Both companies have the same financial year-end. Alco has reported a net profit (based on profit before interest and tax) of 25% and Saleco has reported a net profit of 2%. What, if any, is the difference between these two companies, even though they are showing the same ROCE calculation? 

A.  The companies are identical
B.  Alco operates at the high end of the market, and Saleco at the lower end
C.  Alco operates at the lower end of the market, and Saleco at the high end
D.  There is not enough information in the question to determine the difference 

Guidance (Tips/ Steps/ Cách tư duy)

Step 1: Identify the elements that constitutive ROCE

ROCE = operating profit margin * net asset turnover

Step 2: Assess the difference between 2 companies from the difference between those elements that constitutive ROCE

Answer: B. Alco operates at the high end of the market, and Saleco at the lower end

Asset turnover (Alco) = 10%/25% = 0.4 times

Asset turnover (Saleco) = 10%/2% = 5 times

🡪 Alco has lower asset turnover than Saleco. 🡪 Saleco has lower Average Total assets

[Because Asset turnover = Net sales/Average Total assets and Alco has higher net profit (25%) compare to Saleco (2%)]

🡪 Alco does not use assets intensively to generate a profit. This would be expected of a high-end retailer, as they are not volume-driven.

🡪 Alco is a high end of the market

Câu 2: Gross profit margin

Learning outcome: Hiểu được về chỉ số Gross profit margin

Question: 

Which of the following is not a valid reason for a decrease in gross profit margin?

A.  A major customer renewed their contract during the year following a competitive tender process
B.  New plant and equipment used in the manufacturing process has been purchased in the year, which has increased the depreciation expense
C.  Delivery costs to customers have risen following an increase in the rates charged by couriers
D.  A national recession has led to sales prices being cut in response 

Guidance (Tips/ Steps/ Cách tư duy

Gross Profit Margin = Gross Profit/Revenue = (Revenue – COGS)/Revenue

Gross Profit Margin decrease when

• Revenue decrease, or
• COGS increase
• Gross profit decrease

Answer: C. Delivery costs to customers have risen following an increase in the rates charged by couriers.

A 🡪 Increase revenue but actually decrease Gross profit (competitive tender process 🡪 might be decrease price)

B 🡪 COGS increase (Because depreciation expense increase 🡪 costs for manufacturing process increase)

C 🡪 Not relevant (delivery costs not included in COGS)

D 🡪 Revenue decrease

1.2. DẠNG 2: Liquidity ratio

Câu 3: Current ratio 

Learning outcome: Nắm được ảnh hưởng của các yếu tố tới current ratio

Question: 

A company has a current ratio greater than 1:1 If the company uses cash to reduce trade payables, how will these payments affect each of the Current ratio (Increase, Decrease or No change) 

Guidance (Tips/ Steps/ Cách tư duy)

Step 1: Identify elements of the current ratio

Current Ratio = Current Asset/Current Liability 

Step 2: Analysis of the effect of the event in scenario on elements of current ratio

Answer: 

Company uses cash (Decrease current asset) to reduce trade payables (Decrease current liability) 🡪 Current asset and Current liability reduce the same amount. In addition, Current Asset/Current Liability > 1

🡪 After the event current ratio will increase

1.3. DẠNG 3: Gearing ratio

Câu 4: 

Learning outcome: 

Question: 

On 31 March 2015, Jasim had shareholders’ funds (equity) of $200,000 and debt of $100,000.

Which of the following transactions would increase Jasim’s gearing compared to what it would have been had the transaction NOT taken place? (Each transaction should be considered separately)

A.  During the year property was revalued upwards by $20,000
B.  A bonus issue of equity shares of 1 for 4 was made during the year using other components of equity
C.  A provision for estimated damages was reduced during the year from $21,000 to $15,000 based on most recent legal advice
D.  An asset with a fair value of $29,000 was acquired under a finance lease on 31 March 2015

Guidance (Tips/ Steps/ Cách tư duy)

Gearing ratio = Debt/ (Debt + Equity) 🡪 Gearing ratio = 1/3

A.  a property was revalued upwards by $20,000 🡪 Equity increase by 20,000 🡪 Gearing ratio decrease
B.  Bonus issue DO NOT effect on Debt or equity 🡪 Gearing ratio not change
C.  Provision decrease 🡪 Debt decrease 🡪 Gearing ratio decrease (Gearing raio <1)
D.  Finance lease increase 🡪 Debt increase 🡪 Gearing ratio decrease

Answer: D. An asset with a fair value of $29,000 was acquired under a finance lease on 31 March 2015

1.4. DẠNG 4: Efficiency ratio

Câu 5: Operating circle

Learning outcome: Nắm được ảnh hưởng của các efficiency ratio tới operating circle

Question: 

Using the picklist provided, select the correct option to complete the following statement. Reducing what the elements will increase the length of a company's operating cycle? 

A.  Receivables collection period
B.  Inventory holding period
C.  Payables payment period
D.  Time is taken to produce goods 

Guidance (Tips/ Steps/ Cách tư duy)

Operating circle = Inventory holding period + Receivables collection period- Payables payment period

Answer: C. payables payment period 

Reducing the payables payment period will increase the length of a company's operating cycle. This will reduce working capital and means that it will take longer to build up working capital needed for production. The other options will all speed up the operating cycle. 

1.5. DẠNG 5: Investor ratio

Câu 6: 

Learning outcome: Biết cách tính dividend yield

Question: 

In the year to 31 December, 20X9 Weston Co-pays an interim equity dividend of 3.4c per share and declares a final equity dividend of 11.1c. It has 5 million $1 shares in issue and the ex-div share price is $3.50. What is the dividend yield?

A.  4% 
B.  24%
C.  3.2%
D.  4.1% 

Guidance (Tips/ Steps/ Cách tư duy)

Step 1: Calculate dividend per share

Dividend per share = Dividend per share in interim + Dividend per share in final

Step 2: Calculate dividend yield

Dividend yield = Dividend per share/Current market price per share (ex-div)

Answer: D. 4.1%

Dividend yield = (0.034 + 0.111)/3.5 * 100% = 4.1%

2. Limitations of financial statements and interpretation techniques

Ref: Tóm tắt kiến thức Topic 2: Limitations of financial statements and interpretation techniques

Mức Độ: Ít quan trọng

2.1. DẠNG 1: Limitations of financial statements 

Câu 1: Window dressing

Learning outcome: Nắm được thế nào là window dressing 

Question: 

Which of the following statements is NOT window dressing? 

A.  Record an unusually low bad debt provision
B.  Offer early shipment discounts to get revenues in the current year
C.  Withhold supplier payments so that they are recorded in a later period.
D.  Using FIFO (and to some degree the weighted average method) inventory being used might be valued as the earliest purchases 

Guidance (Tips/ Steps/ Cách tư duy)

Window dressing is an accounting adjustment made just before the year-end to improve the appearance of the financial statements 

Answer: 

Using FIFO (and to some degree the weighted average method) inventory being used might be valued as the earliest purchases 🡪 This is just the result of inventory carried at historical cost. 

Câu 2: Historical cost

Learning outcome: Hiểu được ảnh hưởng của historical cost lên BCTC 

Question: 

Use of historical cost accounting means asset values can be reliably verified but it has a number of shortcomings which need to be considered when analysing financial statements. Which of these is a possible result of the use of historical cost accounting during a period of inflation?

A.  Overstatement of non-current asset values
B.  Overstatement of profits
C.  Understatement of interest costs
D.  Understatement of ROCE 

Guidance (Tips/ Steps/ Cách tư duy)

Step 1: Assess the effect of inflation on the price

Period of inflation: Price increase 🡪 historical cost < Current cost

Step 2: Assess the effect of cost on factor in scenario

Answer: B. Overstatement of profits 

Historical cost < Current cost 

🡪 Non-current asset values (recognise at historical cost) < Fair value 

🡪 Non-current asset values are understated (A-false)

🡪 Understated depreciation 🡪 Overstated profits (B-true)

Interest costs are not relevant (C-false)

ROCE = Operating profit/ (Total assets - Current liabilities)

Operating profit increase

Total assets decrease (Non-current asset values are understated)

🡪 ROCE is overstated

2.1. DẠNG 2: Limitations of ratio analysis 

Câu 3: Limitation of applying ratio 

Learning outcome: Nắm được các hạn chế khu sử dụng các chỉ số phân tích

Question: 

Identify whether each of the following is a limitation of applying ratio analysis to published financial statements or not. 

	Limitation	Not a limitation
Different ways of calculating certain ratios exist
Accounting policy choices can limit comparability between different companies

Guidance (Tips/ Steps/ Cách tư duy)

There are 5 factors that have an effect on ratio analysis

• Different accounting policies
• Different ratio definitions 

E.g This may be a particular problem with ratios like ROCE as there is no universally accepted definition 

• Comparing to averages

E.g. Many of the companies included in the sector may not be a good match to the type of business being compared. Some companies go for high mark-ups, but usually lower inventory turnover, whereas others go for selling more with lower margins

• Possible deliberate manipulation (creative accounting)
• Different managerial policies

E.g Different companies offer customers different payment terms

Answer: 

	Limitation	Not a limitation
Different ways of calculating certain ratios exist	X
Accounting policy choices can limit comparability between different companies	X

Câu 4: comparability of ratios

Learning outcome: Nắm được kiến thức về comparability of ratios

Question: 

Which of the following items is unlikely to be considered a ‘one-off’ item which would impact the comparability of ratios?

A.  A new website selling direct to the public has meant that deliveries are now made to more diverse geographical areas, increasing delivery costs
B.  A closure of a department has led to redundancies
C.  Sale of surplus property leading to a profit on disposal
D.  A storm in the year led to significant damage to the warehouse 

Guidance (Tips/ Steps/ Cách tư duy)

A one-time item is a gain, loss, or expense on the income statement that is nonrecurring in nature.

Answer: A

While the website is new in the year, the additional delivery costs are likely to be incurred every year in the future, meaning it is not a ‘one-off’ item.

3. Specialised, not-for-profit, and public sector entities

Ref: Tóm tắt kiến thức Topic 3: Specialised, not-for-profit, and public sector entities

Mức Độ: Ít quan trọng

Câu 1: IFRS requirements for not-for-profit entities

Learning outcome: 

Question: 

Although the objectives and purposes of not-for-profit entities are different from those of commercial entities, the accounting requirements of not-for-profit entities are moving closer to those entities to which IFRSs apply.

Which of the following IFRS requirements would NOT be relevant to a not-for-profit entity?

A.  Preparation of a statement of cash flows
B.  Requirement to capitalise a leased asset
C.  Disclosure of dividends per share
D.  Disclosure of non-adjusting events after the reporting date

Guidance (Tips/ Steps/ Cách tư duy)

Not-for-profit does not have equity

Answer: C. Disclosure of dividends per share

Câu 2: Feature of not-for-profit entities

Learning outcome: Nắm được các đặc điểm của not-for-profit entities

Question: 

Which of the following statements about a not-for-profit entity is valid?

A.  There is no requirement to calculate an earnings per share figure as it is not likely to have shareholders who need to assess its earnings performance.
B.  The current value of its property is not relevant as it is not a commercial entity.
C.  Interpretation of its financial performance using ratio analysis is meaningless.
D.  Its financial statements will not be closely scrutinised as it does not have investors.

Guidance (Tips/ Steps/ Cách tư duy)

A not-for-profit entity is not likely to have shareholders or ‘earnings’.

B 🡪 Current value accounting reflects the valuation liabilities 🡪 relevant to NFP entity 

C 🡪 Might not be using profit ratio but need using liquidity ratio

D 🡪 Need to closely scrutinize for ensuring going concern

Answer: A. There is no requirement to calculate an earnings per share figure as it is not likely to have shareholders who need to assess its earnings performance.

Câu 3: Feature of not-for-profit entities

Question: 

Which of the following ratios is likely to be most relevant for a local charity?

A.  Operating profit margin
B.  Current ratio
C.  Earnings per share
D.  Return on capital employed

Guidance (Tips/ Steps/ Cách tư duy)

Charity is a not-for-profit organization 🡪 not concern about profit

A, C and D are all ratios associated with profit. A charity is more likely to be concerned with
liquidity rather than the profits made by the entity.

Answer: B. Current ratio

 

Author: Dat Le