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CIMAPRA19-F02-1 Exam - Topic 1 Question 73 Discussion

AB sold the majority of its operating equipment to LM for cash on 30 December 20X9 and then immediately leased it back under an operating lease.AB used the cash proceeds from the sale to reduce its long term borrowings significantly. No early repayment charge was levied by the lender.Which of the following statements is truein respect of AB's ratios calculated at 31 December 20X9?
D) AB's gearing ratio would be lower as a result of this sale being recorded.
A) AB's return on capital employed would be lower as a result of this sale being recorded.
B) AB's current ratio would be lower as a result of this sale being recorded.
C) AB's non-current asset turnover would be lower as a result of this sale being recorded.

CIMAPRA19-F02-1 Exam - Topic 1 Question 73 Discussion

Actual exam question for CIMA's CIMAPRA19-F02-1 exam
Question #: 73
Topic #: 1
[All CIMAPRA19-F02-1 Questions]

AB sold the majority of its operating equipment to LM for cash on 30 December 20X9 and then immediately leased it back under an operating lease.

AB used the cash proceeds from the sale to reduce its long term borrowings significantly. No early repayment charge was levied by the lender.

Which of the following statements is truein respect of AB's ratios calculated at 31 December 20X9?

Show Suggested Answer Hide Answer
Suggested Answer: D

by Lemuel at Aug 09, 2023, 12:27 PM

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Jeannetta
10 months ago
Not convinced that this sale is a good move for AB's overall financial health.
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Leontine
10 months ago
A is correct, return on capital employed will drop for sure.
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Blair
10 months ago
Wait, how does selling and leasing back affect non-current asset turnover?
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Jesusa
10 months ago
I think the current ratio might actually increase, not decrease.
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Arlen
10 months ago
AB's gearing ratio will definitely be lower after reducing long-term borrowings.
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Mirta
11 months ago
I’m leaning towards option D because reducing long-term borrowings should lower the gearing ratio, but I’m not completely confident about how the lease plays into that.
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Bulah
11 months ago
I practiced a similar question where selling assets affected the non-current asset turnover, so I feel like that might be the right answer here too.
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Penney
11 months ago
I think the current ratio might actually increase since they got cash from the sale, but I need to double-check how the lease affects current liabilities.
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Jesusa
11 months ago
I remember that selling assets can impact the return on capital employed, but I'm not sure if it would definitely lower it in this case.
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Silvana
11 months ago
This one seems straightforward. The question states that the Huawei X6800 supports mixed configuration of server nodes, so the answer has to be TRUE.
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Lenna
11 months ago
This seems similar to a practice question we did on break-even analysis; I remember calculating fixed costs and revenue ratios.
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Felix
11 months ago
Hmm, this seems like a tricky one. I'll need to think through the different Azure resource management tools and how they can be used to restrict VM creation.
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