ACCA FR Syllabus C. Analysing And Interpreting The Financial Statements - Ratio limitations - Past Papers ^{1 / 1}

December 2017 ^Sample

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Question 31b

Mowair Co is an international airline which flies to destinations all over the world.

Mowair Co experienced strong initial growth but in recent periods the company has been criticised for under-investing in its non-current assets.

Extracts from Mowair Co’s financial statements are provided below.

Statements of financial position as at 30 June:

	20X7	20X6
	$’000	$’000
Assets
Non-current assets
Property, plant and equipment	317,000	174,000
Intangible assets (note ii)	20,000	16,000
	337,000	190,000
Current assets
Inventories	580	490
Trade and other receivables	6,100	6,300
Cash and cash equivalents	9,300	22,100
Total current assets	15,980	28,890
Total assets	352,980	218,890
Equity and liabilities
Equity
Equity shares	3,000	3,000
Retained earnings	44,100	41,800
Revaluation surplus	145,000	Nil
Total equity	192,100	44,800
Liabilities
Non-current liabilities
6% loan notes	130,960	150,400
Current liabilities
Trade and other payables	10,480	4,250
6% loan notes	19,440	19,440
Total current liabilities	29,920	23,690
Total equity and liabilities	352,980	218,890

Other EXTRACTS from Mowair Co’s financial statements for the years ended 30 June:

	20X7	20X6
	$’000	$’000
Revenue	154,000	159,000
Profit from operations	12,300	18,600
Finance costs	(9,200 )	(10,200 )
Cash generated from operations	18,480	24,310

The following information is also relevant:

(i)	Mowair Co had exactly the same flight schedule in 20X7 as in 20X6, with the overall number of flights and destinations being the same in both years.
(ii)	In April 20X7, Mowair Co had to renegotiate its licences with five major airports, which led to an increase in the prices Mowair Co had to pay for the right to operate flights there. The licences with ten more major airports are due to expire in December 20X7, and Mowair Co is currently in negotiation with these airports.

Required:

(b) Comment on the performance and position of Mowair Co for the year ended 30 June 20X7.

Note: Your answer should highlight any issues which Mowair Co should be considering in the near future.

(14 marks)

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September 2016 ^Specimen

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MC Question 12

Quartile Co is in the jewellery retail business which can be assumed to be highly seasonal.

For the year ended 30 September 20X5, Quartile Co assessed its operating performance by comparing selected accounting ratios with those of its business sector average as provided by an agency.

Assume that the business sector used by the agency is a meaningful representation of Quartile Co’s business.

Which of the following circumstances may invalidate the comparison of Quartile Co’s ratios with those of the sector average?

(1)	In the current year, Quartile Co has experienced significant rising costs for its purchases
(2)	The sector average figures are compiled from companies whose year ends are between 1 July 20X5 and 30 September 20X5
(3)	Quartile Co does not revalue its properties, but is aware that other entities in this sector do
(4)	During the year, Quartile Co discovered an error relating to the inventory count at 30 September 20X4. This error was correctly accounted for in the financial statements for the current year ended 30 September 20X5

A 1 and 3
B 2 and 4
C 2 and 3
D 1 and 4

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December 2014 ^Specimen

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MC Question 2

Quartile is in the jewellery retail business which can be assumed to be highly seasonal.

For the year ended 30 September 2014, Quartile assessed its operating performance by comparing selected accounting ratios with those of its business sector average as provided by an agency.

You may assume that the business sector used by the agency is an accurate representation of Quartile’s business.

Which of the following circumstances may invalidate the comparison of Quartile’s ratios with those of the sector
average?

(i)	In the current year, Quartile has experienced significant rising costs for its purchases
(ii)	The sector average figures are complied from companies whose year end is between 1 July 2014 and 30 September 2014
(iii)	Quartile does not revalue its properties, but is aware that other entities in this sector do
(iv)	During the year, Quartile discovered an error relating to the inventory count at 30 September 2013. This error was correctly accounted for in the financial statements for the current year ended 30 September 2014

A All four
B (i), (ii) and (iii)
C (ii) and (iii) only
D (ii), (iii) and (iv)

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