Page 529 - F2 Integrated Workbook STUDENT 2019

Supplementary objective test questions

18.5 The current ratios for JS are:

20X9 20X8
0.65 0.7

Which of the following statements is not a reasonable conclusion based
on the current ratios of JS?

A JS is insolvent and will have to liquidate the business immediately as its
current assets cannot cover its current liabilities.

B JS may be taking longer to repay their suppliers in 20X9 compared to
20X8.

C JS’s may have reduced their credit terms to customers and improved
credit control procedures during 20X9.

D JS could operate in the supermarket sector.

18.6 Interest cover for GBR Ltd has decreased from 5.4 times to 2.8 times in the
year ended 31 May 20X6.

Which of the following would NOT be a valid reason for the decrease?

A An increase in the level of long term debt.

B A fall in operating margins.

C A one off credit to the profit and loss account due to a provision no longer
being required.

D An increase in the number of assets classified as leases.

18.7 Which of the following would cause an improvement in an entity’s return
on capital employed (ROCE) %?

(Select ALL that apply)

A Within the previous year, significant redundancy costs were incurred due
to the poor economic conditions within the industry. Economic conditions
have improved and the redundancies are not repeated during the current
period.

B An increase in long-term borrowings. This is caused by the receipt of a
loan from the bank. The funds from the loan have been invested in new
PPE on the last day of the year.

C A revaluation exercise resulting in an increase in the carrying amount of
property, plant and equipment.

D A reduction in finance costs compared to the previous year.

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