MENU
AB and CDare separate entities that preparefinancial statements to 31 Mayusing international accounting standards. AB and CDprovidetechnical supportservices to the financial services industry and operate in the same country. The financial statements are identical except for the following:
* ABpurchased alloperatingequipment, paying $100,000,using a 5 year bank loan. The useful life of the equipmentwas 5 years.
* CDsigned an operating lease agreement for alloperatingequipment for 5 years paying $20,000peryear.
Bothentities charge all expenses relating tothe equipment to cost of sales.
From the information provided, whichof the following ratios wouldbereliablycomparable for AB and CD?
Suggested Answer: A
Get Premium CIMAPRA19-F02-1 Questions
as Interactive Web-Based Practice Test or PDF
Real Exam Format
Detailed Explanations
Instant Access
Get Your Practice Test
26 comments · newest first
EU
Eura
1 month ago
I feel D) Profit before tax margin isn’t reliable. Different financing affects profits.
AN
Annett
1 month ago
C) Non current asset turnover could work too. Equipment usage is key for both.
AD
Adaline
2 months ago
I disagree, B) Return on capital employed seems better. AB has a loan, CD has lease.
BR
Brock
2 months ago
I think A) Gross profit margin is comparable. Both charge expenses similarly.
CH
Cherry
2 months ago
D) Profit before tax margin might not be comparable. Different expense structures affect it.
VI
Vilma
2 months ago
B) Return on capital employed is tricky. AB has a loan, CD has a lease.
SH
Shelton
2 months ago
I disagree, A) Gross profit margin could work too. They charge expenses the same way.
AB
Abel
2 months ago
I think C) Non current asset turnover is the best choice. Both have similar equipment costs.
IN
In
3 months ago
D) Profit before tax margin might be skewed. Different expense structures could mislead results.
KR
Kris
3 months ago
C) Non current asset turnover could work too. AB has assets, but CD's lease affects it.
SH
Shawnda
3 months ago
I disagree, Joe. B) Return on capital employed isn’t fair. AB owns equipment, CD leases it.
OC
Ocie
3 months ago
I think A) Gross profit margin is comparable. Both charge expenses to cost of sales.
FE
Felicia
3 months ago
Surprised that gross profit margin is the only one that works here!
NO
Noah
4 months ago
Wait, how can they compare anything when one has a loan and the other has a lease?
CY
Cyndy
5 months ago
Definitely agree, return on capital employed is not comparable either!
HE
Heike
5 months ago
I think non-current asset turnover won't be reliable due to the different accounting treatments.
PR
Providencia
5 months ago
Gross profit margin seems comparable since both charge expenses to cost of sales.
ED
Edelmira
6 months ago
Totally agree, A is the only one that makes sense here!
AR
Argelia
6 months ago
Wait, how can they have the same ratios with such different setups?
TA
Talia
6 months ago
C) Non current asset turnover is definitely not comparable!
FR
Frankie
6 months ago
I think B) Return on capital employed won't work due to the loan vs lease.
VE
Verona
6 months ago
A) Gross profit margin is comparable.
KI
Kizzy
6 months ago
Return on capital employed seems tricky because AB has a loan and CD has lease payments. I’m not confident about that one.
YE
Yesenia
7 months ago
I practiced a similar question where we had to compare ratios of companies with different asset structures. I wonder if non-current asset turnover will be reliable here.
KI
King
7 months ago
I think the gross profit margin might be comparable since both companies charge expenses to cost of sales, but I’m not entirely certain.
ME
Melinda
7 months ago
I remember that operating leases can affect how we calculate certain ratios, so I’m not sure if all of them will be comparable.