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CIMAPRA19-F02-1 Exam - Topic 5 Question 95 Discussion

The directors of AB want to reduce the entity's gearing ratio in the year to 31 December 20X9.Which of the following independent actions could the directors take during 20X9 to achieve this?
A) Recognise the valuation surplus on AB's property, plant and equipment.
B) Issue cumulative preference shares.
C) Issue redeemable preference shares.
D) Switch AB's fixed interest bearing borrowing to a lower variable rate borrowing.

CIMAPRA19-F02-1 Exam - Topic 5 Question 95 Discussion

Actual exam question for CIMA's CIMAPRA19-F02-1 exam
Question #: 95
Topic #: 5
[All CIMAPRA19-F02-1 Questions]

The directors of AB want to reduce the entity's gearing ratio in the year to 31 December 20X9.

Which of the following independent actions could the directors take during 20X9 to achieve this?

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Suggested Answer: A

by Isadora at Aug 24, 2024, 10:51 PM

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Malika
9 months ago
Not sure about A, isn't that just accounting magic?
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Vicky
10 months ago
B and C are solid options for raising capital without debt!
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Martin
10 months ago
Wait, can switching to variable really reduce gearing?
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Herschel
10 months ago
Totally agree, D could help lower interest costs too.
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Darci
10 months ago
A is a good move, it boosts asset values!
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Rene
10 months ago
I vaguely recall that redeemable preference shares might reduce gearing because they can be treated differently than regular debt, but I’m not completely confident about that.
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Hester
11 months ago
I practiced a question like this, and I feel like switching to lower variable rate borrowing might actually increase risk, which could be counterproductive for gearing.
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Sunshine
11 months ago
I think issuing cumulative preference shares could help because it might not increase debt in the same way as loans do, but I need to double-check how they impact the gearing ratio.
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Shaun
11 months ago
I remember gearing ratios are affected by debt levels, so reducing debt would help, but I'm not sure how recognizing a surplus would fit in.
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Theron
11 months ago
Okay, I think I've got this. Recognizing a valuation surplus would increase equity, which would lower the gearing ratio. Issuing preference shares would increase debt, so that's not the right approach. Switching to variable rate borrowing could also help, as it may reduce the overall debt level.
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Dick
11 months ago
Hmm, I'm a bit unsure about this one. Recognizing a valuation surplus, issuing preference shares, and switching to variable rate borrowing - I'll have to carefully consider how each of these would affect the gearing ratio.
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Jolanda
11 months ago
This seems like a straightforward question about reducing gearing ratio. I'll need to think through the different options and how they would impact the balance sheet.
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Adelle
11 months ago
This is a good test of my understanding of gearing ratio and how to manage it. I'll need to think through the pros and cons of each option to determine the best approach for reducing the ratio.
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Lashunda
11 months ago
Hmm, I'm a bit confused by the namespace declaration. I'll need to review my notes on XML Schema namespaces to make sure I understand this properly.
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Vallie
11 months ago
The key here is understanding the purpose of the 'design and transition' value chain activity. I'll focus on that to try to eliminate the incorrect answers.
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Vincent
1 year ago
Ah, the age-old dilemma: should I go with the safe and boring option, or take a chance on something more exciting? I'll have to think this one over with a nice cup of tea.
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Valentine
1 year ago
Wow, this is a tough one. I'm torn between A and D. Maybe I should just flip a coin and hope for the best!
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Fidelia
1 year ago
Redeemable preference shares? Sounds like a risky move. I think I'll play it safe and go with the variable rate borrowing.
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Jospeh
1 year ago
Switching to a lower variable rate borrowing seems like a safe bet to reduce the gearing ratio.
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Latrice
1 year ago
I think recognising the valuation surplus on property, plant, and equipment could also help reduce the gearing ratio.
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Cheryll
1 year ago
I agree, redeemable preference shares do seem risky. I would also go with the variable rate borrowing.
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Anjelica
1 year ago
Issuing preference shares could work, but I'm not sure if that's the best approach. Option D looks more promising to me.
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Rebbecca
1 year ago
Switching fixed interest bearing borrowing to a lower variable rate borrowing sounds like a solid plan.
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Carmelina
1 year ago
I agree, but issuing redeemable preference shares might also be a good option.
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Frank
1 year ago
I think recognizing the valuation surplus on property, plant, and equipment could help.
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Lauran
1 year ago
Recognizing the valuation surplus seems like a straightforward way to reduce the gearing ratio. I'll go with option A.
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Laila
1 year ago
I think issuing redeemable preference shares could also be a good option to consider.
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Nan
1 year ago
I agree, recognizing the valuation surplus would definitely help reduce the gearing ratio.
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Alpha
1 year ago
But wouldn't recognising the valuation surplus on property, plant, and equipment also help in reducing gearing ratio?
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Aracelis
1 year ago
I agree with Coleen, switching to a lower variable rate borrowing would decrease the interest expense.
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Coleen
1 year ago
I think option D could help reduce the gearing ratio.
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