CIMA CIMAPRO19-P03-1 Exam Questions Instant Access

Question 1

Company W produces mobile phone components and has recently tendered for a substantial contract. The results of the tendering process will not become available until three months from now. If the company is successful it will require 2,000 units of a commodity which is currently traded in an open commodity market for $740 per unit. However, there has been speculation that this commodity could increase substantially in price over the next three months and so the company is considering purchasing the commodity now and storing it for three months.

The funds to buy the commodity would be borrowed at an annual interest rate of 7% and the storage cost of the product would be $5.40 per unit per month. The storage costs would be paid at the end of the three month storage period.

Which of the following represents the gain or loss (to the nearest thousand dollars) that will accrue to Company W assuming that the price of the commodity rises to $800 in three months' time?

A$62,000 gain

B$95,000 gain

C$88,000 gain

D$16,000 loss

Answer : A

Question 2

M is a listed company. It is hoping to invest in a risky new venture. M has a substantial amount of cash to invest in the venture. M would have found it difficult to raise new finance as it has a high level of gearing. Which of the following statements about stakeholders' conflicting interests are true?

AM's shareholders would only be exposed to the systematic risk from the investment in the new venture.

BM's credit rating is likely to fall as a result of this new venture.

CThe directors would only beexposed to the systematic riskfrom the investment in the new venture.

DM's diversification will mean less risk for the shareholders.

Answer : A, B

Question 3

A capital investment project shows a NPV of 3,450 at a discounted rate of 8% and an NPV of 1,210 at a discounted rate of 9%.

Whatistheinternal rate ofreturn?

A11.85%

B10.85%

C10.54%

D9.54%

Answer : D

Question 4

The management of U isreviewing internal controls throughout the company. Ithasnoted the following:-

1. In the trade receivables section, journal adjustments are made by the clerks, without any reference to their supervisor. Journal adjustments may relate to sales returns, discounts allowed, or transfers between accounts.

2. In the purchasing department, the purchasing manager selects and approves all suppliers, astheyarethe only person with sufficient experience to do so. They usea very limited number of suppliers becausethey can rely on these suppliers to provide goods of the quality required at a competitive price. They donot keep any documents in relation to negotiations with other potential suppliers or other quotes obtained.

In relation to the above, which of the following statements are valid?

AThe fact that the purchasing manager uses a very small number of suppliers is, in itself, a sign of poor internal controls.

BIt is acceptable for clerks in the trade receivables section to make journal adjustments without authorisation provided the amounts involved are not material to U's financial statements.

CIt is acceptable for clerks in the trade receivable section to make journal adjustments without authorisation, provided they have no access to cash receipts.

DThe fact that the purchasing manager does not keep documentation relating to negotiations with suppliers, or potential suppliers,is evidence that they are involved in fraudulent activity.

EClerks making journal adjustments without reference to their supervisor is evidence of inadequate separation of duties.

FThe way the role of purchasing manager is carried out in U increases the chance that the company will fall victim to fraudulent activity.

Answer : E, F

Question 5

SDF is a quoted company that has a large internal audit department.

Which of the following would impair the independence of SDF's internal audit?

AThe head of internal audit reports directly to SDF's chief accountant.

BJunior internal audit staff are recruited directly from university. They spend two years with the company before moving into other departments within SDF.

CInternal audit staff receive a bonus whenever they discover a compliance error.

DIt is left to the individual members of the internal audit department to report any conflicts of interest associated with a proposed investigation to which they have been assigned.

EInternal audit staff salaries are linked to a company-wide salary scheme.

Answer : A, B, C

Question 6

JHU has recently completed an eight year project. The project was evaluated at a discount rate of 10% and was accepted because the net present value was $18 million.

In year 3 of the project there was a significant unexpected repair arising because of the implementation stage of the project was rushed and some checks on equipment were skipped to save time. The cost of this was $8 million.

In year 8 of the project the costs of dismantling the project were $11 million more than anticipated because of unexpected changes to the law concerning disposal of industrial scrap.

How should these findings be reflected in the post completion audit?

APoor project management cost the entity $6 million, to the nearest million.

BPoor project management cost the entity $11 million, to the nearest million.

CPoor project management cost the entity $5 million, to the nearest million.

DPoor project management cost the entity $16 million, to the nearest million.

Answer : A

Question 7

B, a construction company, has a policy of carrying out a post completion audit on every construction project undertaken where the value exceeds $1 million.

What is the role of the post completion audit?

ATo reward staff and celebrate success.

BTo signify the end of the project.

CTo highlight what can be done to improve similar future projects.

DTo apportion blame for things not done well.

Answer : C

CIMA P3 Risk Management CIMAPRO19-P03-1 Exam Questions