CIMAPRA19-F02-1 Exam - Topic 2 Question 118 Discussion

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

Question #: 118
Topic #: 2

JKL measure gearingas debt:equity, based on book values.At 31 December 20X5the ratio is 2:3 and JKL would like this to be 2:5.

Which of the following transactions individually would achieve this?

ABonus issue from the share premium account.

BRevaluationof investment propertyto an increased fair value.

CRepayment of a6 year termloan with the issue of 5 year redeemable debentures.

DIssue of redeemable preference shares at par.

Show Suggested Answer

Suggested Answer: B

by Mirta at Oct 31, 2025, 05:31 PM

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Renea

9 hours ago

I’m not sure about D either, seems risky to issue preference shares now.

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Leontine

6 days ago

Definitely not A, that just shifts things around without changing the ratio.

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Cristy

11 days ago

Wait, can a bonus issue really help with the gearing ratio?

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Ronnie

16 days ago

I think option C makes the most sense here!

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Georgiann

21 days ago

The current ratio is 2:3, aiming for 2:5 means reducing debt or increasing equity.

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Karma

26 days ago

I bet JKL is wishing they had a money tree in their backyard right about now. That would make this whole debt:equity thing a lot easier!

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Nell

1 month ago

Hmm, I wonder if JKL considered using a magic wand to change the ratio. That would be a lot more fun than these boring financial transactions!

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Freeman

1 month ago

A) Bonus issue from the share premium account. This will increase the equity side of the balance sheet, but it won't change the debt side, so the ratio won't improve.

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Edelmira

1 month ago

C) Repayment of a 6 year term loan with the issue of 5 year redeemable debentures. This will reduce the debt side of the balance sheet, leading to a better debt:equity ratio.

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Tran

2 months ago

I think issuing redeemable preference shares could be a way to adjust the equity, but I need to double-check how that impacts the overall gearing calculation.

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Norah

2 months ago

I feel like revaluing investment property could increase equity, but I'm not confident if it would directly help achieve the desired ratio.

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Darrin

2 months ago

This question seems similar to one we practiced where we had to adjust equity to improve the gearing ratio. I think repayment of the loan might help.

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Lindsey

2 months ago

D) Issue of redeemable preference shares at par. This will increase the equity side of the balance sheet, which is exactly what JKL needs to achieve the desired debt:equity ratio.

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Jacki

2 months ago

B) Revaluation of investment property to an increased fair value. This will increase the asset side of the balance sheet, thereby improving the debt:equity ratio.

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Gilberto

3 months ago

It reduces debt and improves equity ratio.

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Harrison

3 months ago

I remember we discussed gearing ratios in class, but I'm not entirely sure how a bonus issue affects the equity side.

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Chaya

3 months ago

This is a good test of my financial accounting knowledge. I'll work through the calculations systematically and double-check my work to ensure I get the right solution.

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Janessa

4 months ago

The wording of this question is a bit tricky. I'll need to make sure I fully understand how each transaction affects the debt and equity components before selecting the right answer.

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Gerald

4 months ago

Okay, I think I've got this. I just need to analyze how each transaction would change the balance sheet and recalculate the ratio. I'm feeling pretty confident I can solve this.

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My

4 months ago

Hmm, I'm a bit confused about how the different transactions would impact the debt-to-equity ratio. I'll need to think through each option carefully.

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Jeff

4 months ago

This seems like a straightforward ratio calculation question. I'll need to work through the debt and equity values to see which transaction would shift the ratio as desired.

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Val

2 months ago

Sounds simple, but it can get tricky.

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Katlyn

3 months ago

Exactly! That should help achieve the desired ratio.

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