Cima F2 Exam Question No 31

Question No 31:

What is Futures contracts?\

Futures contracts oblige the holder to buy or sell a standard quantity of a specific underlying item at a specified future date. Futures contracts are very similar to forward contracts. The difference is that futures contracts have standard terms and are traded on a financial exchange, whereas forward contracts are tailor made and are not traded on a financial exchange.

Cima F2 Exam Question No 30

Question No 30:

When can WACC be used as a discount rate?

The WACC is often used as a discount rate when using net present value or internal rate of return calculations. However, this is only appropriate if the following conditions are met:
(1) The capital structure is constant. If the capital structure changes, the weightings in the WACC will also change.
(2) The new investment does not carry a different business risk profile to the existing entity's operations.
(3) The new investment is marginal to the entity. If we are only looking at a small investment then we would not expect any of ke, kd or the WACC to change materially. If the investment is substantial it will usually cause these values to change.

Cima F2 Exam Question No 29

Question No 29:

Cash-settled share-based payments measure?

• Until the liability is settled, the entity remeasures the fair value of the liability at each reporting date and then at the date of settlement. Notice that this is different from accounting for equity share-based payments, where the fair value is fixed at the grant date.
• Changes in fair value are recognized in profit or loss for the period.
• Where services are received, these are recognized over the period that the employees render the services. (This is the same principle as for equity-settled transactions).
• The expense recognized in each accounting period has a double entry to a provision/liability account.
• Dr P/L
• Cr Liability
• On the vesting date, the amount of the liability should equal the cash to be paid.