Deck 17: Financial Reporting: Segment Reporting and Highlights Statements

Question 1

A company reports the following in relation to its latest financial year:
$$\begin{array} { l l } \text { Net profit } & \$ 12000 \\\text { Number of ordinary shares issued } & 5000\end{array}$$
Number of preference shares issued
$$\text { \{paying an annual dividend of } 50 \text { cents per share\} }$$
The company's basic earnings per share figure is:

A) $2.00
B) $2.20
C) $2.10
D) $2.35

Answer 1

$2.00

Question 2

Reporting by segments of a business is believed to have a number of disadvantages.Which of the following is not likely to be such a disadvantage?

A) Segment information may not be sufficiently reliable
B) The costs to a business of providing segment information may exceed the benefits to investors
C) Providing segment information may assist a business's competitors
D) Investors invest in a whole company and not in its individual segments

Answer 2

D

Question 3

A company reports the following information on its year-end financial statements:
$$\begin{array} { l l } \text { Cument assets } & \$ 300 \\\text { Non-current assets } & 700 \\\text { Current liabilities } & 150 \\\text { Non-current liabilities } & 250\end{array}$$
Shareholders' equity 600
What is the debt-to-equity ratio?

A) 50.0%
B) 66.7%
C) 40.0%
D) 33.3%

Answer 3

66.7%

Question 4

When evaluating whether to calculate diluted earnings per share (EPS),a company issuing convertible notes should consider:

A) the time weighting factor
B) if the notes potentially convert to ordinary shares
C) if conversion of the notes is likely to increase earnings, or decrease losses, per share
D) both B and C must be considered

Question 5

Which of the following items need not be shown when reporting primary segment information for a business?

A) Segment results
B) Segment revenues
C) Segment receivables
D) Segment liabilities

Question 6

Which of the following is not a likely benefit of including a highlights statement in the annual report of a business?

A) It provides unskilled readers of the report with a simple summary of key financial indicators
B) The statement is regarded by many readers as being highly informative
C) Performance indicators can be calculated and then clearly set out in the highlights statement
D) Management can select what items are to be included in the report

Question 7

What benefits is an investor likely to gain if a business presents financial information for its various separate major organisational divisions and/or geographical areas of operations? Are there any likely costs (direct or indirect)to the investor from the presentation of this information?

Question 8

Discuss the benefits of the 'management approach' adopted by AASB 8.

Question 9

The 'current ratio' is usually calculated as:

A) current assets minus goodwill ÷ current liabilities
B) current assets ÷ current liabilities
C) current assets excluding inventory ÷ current liabilities
D) current liabilities ÷ current assets

Question 10

Under the provisions of Australian Accounting Standard AASB 133,a basic earnings per share is calculated as:

A) profit or loss including extraordinary items and after income tax expense ÷ weighted average number of ordinary shares outstanding during the reporting period
B) profit or loss excluding extraordinary items and before income tax expense ÷ weighted average number of ordinary shares outstanding during the reporting period
C) profit or loss including extraordinary items but before income tax expense ÷ weighted average number of ordinary shares outstanding during the reporting period
D) profit or loss before income tax expense ÷ weighted average number of ordinary shares outstanding during the reporting period

Question 11

Which of the following statements relating to AASB 8 is not true?

A) It adopts a management approach
B) It applies to all for profit entities
C) Reconciliations are required for revenues, profit and loss and other material items
D) None; all of the statements are true

Question 12

Many companies,especially larger companies,now include a highlights statement in their annual reports.What are the main items likely to be included in such a statement? What are the perceived benefits of giving this information? Also explain any possible disadvantages of publishing a highlights statement.

Question 13

A company reports the following in relation to the year ended 30/6/2012:
$$\text { Number of ordinary shares issued at 1/7/2011 } \quad\quad10000$$
Number of preference shares issued
$$\text { \{paying an annual dividend of } \$ 2.00 \text { pershare\} }\quad\quad800$$
On 31/3/2012 a further 1000 ordinary shares were issued.
$$\text { Net profit from ordinary activities, after income tax } \quad\quad\quad\$ 20000$$
The company's basic earnings per share figure (to the nearest tenth of a cent)is:

A) $1.95
B) $1.67
C) $2.00
D) $1.79

Question 14

AASB 8 'Operating Segments' requires entities to report:

A) segments that correspond to internal management reports
B) segment information that is more consistent with other parts of their annual reports
C) more segment information in their interim financial statements
D) all of the above

Question 15

According to paragraph 19 of AASB 8,after which number of reportable segments should an entity consider whether a practical limit has been reached?

A) 10
B) 15
C) 8
D) None of the above

Question 16

Which of the following is an argument against the publication of a highlights statement?

A) Simplifies presentation of data
B) Additional audit work
C) A risk of unconscious bias exists
D) Includes too many financial ratios

Question 17

Reporting by segments of a business is believed to have a number of advantages.Which of the following is not likely to be such an advantage?

A) Allowing better assessment of expected returns from and risks of investing
B) Preventing management from hiding failures in decision making
C) Increasing the net profit of a business
D) Improving investors' decision making

Question 18

A business reports the following in its financial statements:
$$\begin{array} { l } \text { Profit before tax and interest } &\$100\\\text { Interest expense }&\quad\quad\quad\quad20\\\text { Income tax expense }&\quad\quad\quad\quad\quad\quad\quad\quad30\end{array}$$
Its 'times interest earned' ratio is:

A) 5.0 times
B) 6.5 times
C) 3.5 times
D) 4.0 times

Question 19

A company reports the following in relation to its latest financial year:
$$\begin{array} { l l } \text { Cument assets } & \$ 175 \\\text { Non-current assets } & \mathbf { 3 0 0 } \\\text { Current liabilities } & 50 \\\text { Non-current liabilities } & 250\end{array}$$
Writing a cheque for $25 to pay off some long-term debentures payable means that the current ratio will be:

A) 7.0 times
B) 3.0 times
C) unchanged
D) 5.5 times

Question 20

Which of the following is not a quantitative threshold for reporting segment information?

A) Revenue
B) Investments
C) Profit
D) Assets

Question 21

Which of the following is an efficiency ratio?

A) Current ratio
B) Rate of return on total assets
C) Debt-to-equity ratio
D) Times interest earned

Question 22

A business reports the following in its financial statements:
Revenues $1 800
Preference Dividend 400
Expenses 600
Assets 1 900
Liabilities 1 100
What is the times dividends earned ratio?

A) 4.50 times
B) 2.25 times
C) 1.80 times
D) 3.00 times

Question 23

A business reports the following in its financial statements:
$$\begin{array} { l l } \text { Net profit before tax } & \$ 150 \\\text { Interest expense } & 20 \\\text { Income tax expense } & 30 \\\text { Total assets at the beginning of the year } & 700 \\\text { Total assets at the end of the year } & 850\end{array}$$
Its rate of return on total assets is:

A) 19.4%
B) 21.9%
C) 16.8%
D) 4.83%

Question 24

Explain and illustrate,with simple examples,both the usefulness and any possible dangers in using the:
rate-of-returnon total assets ratio
rate-of-returnon equity ratio
times dividends earned ratio
Why are these described as 'efficiency ratios'?

Question 25

A business reports the following in its financial statements:
$$\begin{array} { l l } \text { Net profit before tax } & \$ 100 \\\text { Interest expense } & 20 \\\text { Income tax expense } & 30 \\\text { Preference dividends paid } & 10 \\\text { Ordinary dividends paid } & 15 \\\text { Total assets at the beginning of the year } & 750 \\\text { Total assets at the end of the year } & 850 \\\text { Total liabilities at the beginning of the year } & 3 7 5 \\\text { Total liabilities at the end of the year } & 4 2 5 \end{array}$$
Its rate of return on shareholders' equity is:

A) 11.25%
B) 15.0%
C) 7.5%
D) 22.5%