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F2: Advanced Financial Reporting

CHAPTER 19 – ANALYSIS OF FINANCIAL PERFORMANCE AND
POSITION

19.1 Which of the following reasons could explain a reduction in operating
margin?

(Select ALL that apply)

A A decrease in sales volumes only.

B Increased spending on sales & marketing

C A reduction in irrecoverable debts

D A reduction in gross margin

19.2 PB is analysing the financial statements of two potential acquisition targets, C
and D, which are of a similar size and operate in the same industry.

The return on capital employed of each entity is as follows:
C D

Return on capital employed 45.7% 32.1%

Which TWO of the following statements could realistically explain the
significant difference between the two entities’ return on capital employed
shown above?

A C has a better current ratio than D

B C has recognised a significant gain on disposal of a non-current asset in
administrative expenses

C C’s management is better at controlling costs than D’s

D C relies more on equity finance, whereas D relies on debt finance

E C revalues its non-current assets whereas D uses the cost model

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