CIMA Exam CIMAPRA19-F02-1 Topic 1 Question 87 Discussion

Actual exam question for CIMA's CIMAPRA19-F02-1 exam

Question #: 87
Topic #: 1

AB and CD are competitors supplying components to the car manufacturing industry. AB operates in Country X and CD operates in Country Y. Both entities were incorporated on the same day, are the same size and prepare financial statements to 31 March each year using international accounting standards.

Which of the following statements taken individually would limit the usefulness of the comparison of the return on capital employed ratio between the two entities?

AThe corporate tax rate is 25% in Country X and 40% in Country Y.

BThe average rate of inflation is 3% in Country X and 10% in Country Y.

CThe average rate of borrowing is 2% in Country X and 7% in Country Y.

DThecurrency is Dollar in Country X and Krona in Country Y.

Show Suggested Answer

Suggested Answer: A

by Cristy at May 09, 2024, 10:11 PM

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Cassie

13 days ago

But what about the inflation rates? Wouldn't that also distort the comparison?

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Rex

16 days ago

I agree with Annelle. The tax rates can significantly affect the return on capital employed ratio.

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Annelle

17 days ago

I think the different corporate tax rates would definitely impact the comparison.

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