Question (10) Which statements is correct in relation to Loan to Value ratios (LTV)? The LTV should be above 1 at the beginning of the loan and below 1 at the end of the loan. The LTV should be greater than 1 throughout the term of the loan. The LTV should be below 1 at the beginning of the loan and above 1 at the end of the loan. The LTV should be less than 1 throughout the term of the loan. Which of these transactions would be defined as a capital investment? Annual service costs relating to delivery vehicles. Purchase of warehouse fixtures and fittings. Purchase of finished goods to re-sell to customers. Purchase of fuel to operate machinery. Gate-time inc. have asked you for a 1-vear loan to finance the purchase of 10 -vear leases on a number of new coffee shops. What would be your advice? A short-term loan is a poor choice since interest rates are usually much higher on short-term loars. A short-term loan is a good choice because it offers Cafe-time significant flexibility. Alonger-term loan would be a better choice since it can be repaid from the operating profits generated by the stores. Alonger-term loan would be a poor choice since it would lock Cate-time into making extended teparments. Teystores inc. a regional retaller operating from shopping malls. It plans to expand its business by opening new stores. Which irem would be a capital investment that would support that expansion? Acquisition of an additional warehouse. Peplacement of worn-out existing in-store fixtures and fittings. Purchase of an investment property. Acquisition of additional inventory in anticipation of increased sales. The assets of a business comprise a factory, a large machine in the factory, IT equipment for managing the business, inventory, receivables and cash. How many capital inwestment creles will the husiness have? 1: the factory. 2; the factory and the machine. 4: the factory, the machine, IT equipment and imventory. 3; the factory, the mishine and if equipment. Questom (4) Delivanow buys delivery trucks on 1 July 2015 for $250,000. The trucks will be sold after 4 vears when they are expected to be worth 20% of purchase price. Delivanow uses straight line depreciation with a full charge in the year of acquisition and none in the year of disposal. What is the accumulated depreciation and depreciation charge recorded in the annual accounts prepared at 31 December 2016 ? Accumulated depreciation $100,000, Charge for the year $50,000 Accumulated depreciation $100,000, Charge for the year $100,000 Accumulated depreciation $50,000, Charge for the year $50,000 Accumulated depreciation $75,000, Charge for the vear $0,000 Standard Consulting inc. provides business consulting services. Which activity would be a capital investment for the company? Developing a new it system as a knowledge sharing platform. Advertising to market the businesses services. Acquiring government bonds. Training new staff in consulting skills. Brew inc. purchases a used bottling line for $100,000 cash. At the time of acquisition, the bottling line is 5 yeafs ofd and frew inc. estimates it has a further useful life of 10 years. At that point, it will have a scrap value of $1,000. How should the company record the acquisition of this plant, property, and equipment (PPE) asset? Debit: PPE at cost \$150,000, Credit: Accumulated depreciation \$49,000, Credit: Cash \$100,000, Credit: gain (PSL) on acquisition Debit: PPE atcost $150,000, Credit: Accumulated depreciation $50,000, Credit: Cash $100,000 Debit, Ppe at cost $99,000, Debit: Loss on acquisition, Credit: Cash $100,000, Credit: Gain on acquisition. Debit PPE at cost 100,000, Credit Cash 100,000. Which statement is incorrect regarding loans used to finance the acquisition of an asset? Generally the maximum term of the loan should be shorter than the expected operational life of the asset to ensure the loan is fully repaid before the asset becomes obsolete. The net operating profit earned from operating the asset should exceed the annual interest expense from the loan used to finance it. The expected cumulative cash flows generated by the asset should exceed total loan repayments and interest and provide a return to shareholders. Generally the loan should not exceed 75% of the cost of the asset to ensure an acceptable loan to value ratio over the life of the asset. Which statement is correct? GAAP does not specify the classes of property and equipment assets; but it does require separate disclosure of: Land and buildings, Machinery and equipment. Fixtures and fittings GAAP specifies the classes of property and equipment assets; the most common being: Land and buildings, Machinery and equipment, Fixtures and fittings GAAP allows businesses to determine the classes of property and equipment assets that they disclose; common classes of property and equipment asset are: Land and buildings, Machinery and equipment, Fixtures and fittings. GAAP specifies that property and equipment assets be classified by function between the following headings: Manufacturing, Marketing, Transportation. Question (10) Which statements is correct in relation to Loan to Value ratios (LTV)? The LTV should be above 1 at the beginning of the loan and below 1 at the end of the loan. The LTV should be greater than 1 throughout the term of the loan. The LTV should be below 1 at the beginning of the loan and above 1 at the end of the loan. The LTV should be less than 1 throughout the term of the loan. Teas Shop Inc finance their new store leases using 2/3 rd debt and 1/3 rd equity. Which of these events would reduce the risk for the lendirig institution? Decrease in credit provided by suppliers. Increase in store maintenance costs. Reduction in costs of tea. Decrease in store sales with a constant operating margin