Multiple Choice Questions
1. Which of the following statements is not correct?
(a) A ratio reflects a business model relationship between two or more variables.
(b) When using comparative ratio analysis, it is important to remember that the causal relationship behind a certain value of a ratio may not apply similarly to the two different entities.
(c) Ratio analysis is rarely used for interpreting financial statements.
(d) A ratio calculation is generally the first step in an investigative research to get to the root cause of the situation described by the financial statements.
2. In which type of comparisons are the ratios of one year compared to the historical ratios of the company?
(a) Comparisons against a competitive benchmark.
(b) Comparisons against rules of thumb based on industry-wide experience.
(c) Time-series comparisons.
(d) Cross-sectional comparisons.
3. How is the cash ratio calculated?
(a) (Cash + Marketable securities + Accounts receivable)/Current liabilities.
(b) Cash dividends per share/Earnings per share.
(c) Cash/Marketable securities.
(d) (Cash þ Marketable securities)/Current liabilities.
4. How is the price/earnings ratio (PER) calculated?
(a) Market price per share/Book value per share.
(b) Market price per share/Earnings per share.
(c) Cash dividends per share/Market price per share.
(d) Cash dividends per share/Earnings per share.
5. How is the interest coverage ratio calculated?
(a) Operating income (before interest expense and income taxes)/Interest expense.
(b) Net income/Interest expense
(c) Shareholders’ equity/Interest expense.
(d) Long-term debts/Interest expense.
6. The Economic Value Added represents the creation or increase in ‘value’, resulting from the entity’s current business activities, over and above the value of goods and services, consumed by the entity, that were provided by third parties
(a) True.
(b) False.
7. In what way(s) might reporting financial information by segment help the financial statements users?
(a) It may help them better understand the entity’s operating model and thus better interpret past performance as a leading indicator of future performance.
(b) It may help them better assess the entity’s risks and returns, opportunities and threats.
(c) It may help them make more informed judgments about the entity as a whole.
(d) All of these.
8. IFRS 8 distinguishes business segments and geographical segments.
(a) True.
(b) False.
9. According to IFRS 8, which factor(s) should be considered in identifying segments?
(a) Similarity of economic conditions.
(b) Relationships between operations in different geographical areas.
(c) Special risks associated with operations in a particular area.
(d) All of these.
10. According to IFRS 8, which of the following needs not be reported for a business segment?
(a) Segment revenue from external customers.
(b) Total carrying amount of segment assets.
(c) Total depreciation and amortization of segment assets included in the segment income.
(d) Total cost incurred to acquire segment tangible and intangible assets.