Free CIMA CIMAPRA19-P03-1-ENG Exam Questions

Question 1

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?

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

B : 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.

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

D : 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.

E : erks making journal adjustments without reference to their supervisor is evidence of inadequate separation of duties.

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

Answer: A

Question 2

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?

A : 11.85%

B : 10.85%

C : 10.54%

D : 9.54%

Answer: D

Question 3

A has an opportunity to invest $90,000 in a project that is expected to generate annual cash inflows of $60,000 for each of the next three years. The project's beta coefficient implies a discount rate of 12% for this project, based on a risk-free rate of return of 3%.
A is prepared to forego the expected cash flows from this project in return for a guaranteed payment of $50,000 at the end of year 1, $42,000 at the end of year 2 and $30,000 at the end of year 3.
What is the certainty equivalent value of this opportunity to A?

A : $9,493

B : $25,606

C : $54,120

D : $115,606

Answer: B

Question 4

The internal audit department has just completed an investigation into the HR department's procedures relating to new staff appointments The head of HR is unhappy with the draft report prepared by the lead internal auditor The report lists several cases in which appointments were made despite the fact that one or more of the entity's formal procedures were not followed
The head of HR has complained that the internal auditor's comments do not allow for the fact that the HR department's staff members are often very busy and do not always have time to conduct every check.
The internal auditor's comments also reflect a failure to complete documents None of the omissions have led to the appointment of an unsuitable member of staff
Which TWO of the following statements reflect an appropriate response by the board of directors to this report?

A : noring a compliance error altogether may undermine the control environment

B : procedures should be removed if the HR department staff believe that they are unnecessary

C : board should be seen to support the internal audit

D : errors are immaterial because they did not lead to an inappropriate appointment

E : The members of staff responsible for these omissions should be subjected to disciplinary action

Answer: A,C

Question 5

Having carried out a full capital appraisal for a construction project, HCompanyhasapproved the project with initial outflows of $6,000,000 anda net present value of $1,200,000.
The implementation phase has been commenced with 25% of the costs already committed.However whenthe ground was opened, an underground waterway was revealedwhich will need to be diverted if the project is to proceed. Work to carry out this diversion has been estimated at $1,300,000.
Which of the following factors will define whether the project should go ahead or not?

A : project actually has a higher NPV than before.

B : project now has a negative NPV.

C : andoning the project will have an adverse effect on shareholder confidence.

D : ere will be abandonment costs to restore the site.

E : ere may be other unexpected costs to be met if the project continues.

Answer: A,D