Discuss CIMA CIMAPRA19-F02-1 Exam Topic 1 Question 73

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?

AAB's return on capital employed would be lower as a result of this sale being recorded.

BAB's current ratio would be lower as a result of this sale being recorded.

CAB's non-current asset turnover would be lower as a result of this sale being recorded.

DAB's gearing ratio would be lower as a result of this sale being recorded.

Suggested Answer: D

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12 comments · newest first

Jeannetta 11 months ago

Not convinced that this sale is a good move for AB's overall financial health.

Leontine 11 months ago

A is correct, return on capital employed will drop for sure.

Blair 12 months ago

Wait, how does selling and leasing back affect non-current asset turnover?

Jesusa 12 months ago

I think the current ratio might actually increase, not decrease.

Arlen 1 year ago

AB's gearing ratio will definitely be lower after reducing long-term borrowings.

Mirta 1 year 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.

Bulah 1 year 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.

Penney 1 year 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.

Jesusa 1 year 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.

Silvana 1 year 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.

Lenna 1 year ago

This seems similar to a practice question we did on break-even analysis; I remember calculating fixed costs and revenue ratios.

Felix 1 year 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.

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