Page 527 - F2 Integrated Workbook STUDENT 2019
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Supplementary objective test questions
CHAPTER 18 – ANALYSIS OF FINANCIAL PERFORMANCE AND
POSITION
18.1 Which of the following reasons could explain a reduction in operating
margin?
(Select ALL that apply)
A A decrease in sales volumes in an entity with mainly variable operating
costs
B Increased spending on sales & marketing
C A reduction in irrecoverable debts
D A reduction in gross profit margin
18.2 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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