Cima F1 Exam Question No 34

Question No 34:

Which ONE of the following would be considered to be an example of an indirect tax?

A. An entity assessed for corporate income tax on its profit.
B. An individual purchases goods in a shop, the price includes VAT.
C. An employee has tax deducted from salary through the PAYE system.
D. An individual pays capital gains tax on a gain arising on the disposal of an investment.

Answer: B

Cima F1 Exam Question No 33

Question No 33:

To apply the fundamental principles of the Code of Ethics, existing and potential threats to the entity first need to be identified and evaluated?

A. Confidentiality threat
B. Self-interest threats
C. Self-review threats
D. Familiarity threats
E. Integrity threats
F. Objectivity threats

Answer: B, C, D

Cima F1 Exam Question No 32

Question No 32:

HOTSPOT

Whilst undertaking an external audit, the auditor has identified that there is insufficient evidence to support the financial statements.
As a result the auditors consider these financial statements to be wholly unreliable for decision making purposes.

This will result in a modified audit report with the opinion being 

Cima F1 Exam Question No 31

Question No 31:

Which THREE of the following must an auditor consider in order to form an opinion on the truth and fairness of an entity's financial statements?

A. Whether the entity has kept proper accounting records.
B. Whether the entity has complied with the relevant legislator requirements in respect of the necessary disclosures.
C. Whether all the information and explanations necessary for the purposes of the audit have been received.
D. Whether every transaction that underpins the financial statements has been correctly recorded.
E. Whether the entity has been exposed to any fraud.

Answer: A, B, C

Cima F1 Exam Question No 30

Question No 30:

Which of the following is NOT a principle in the CIMA Code of Ethics for Professional Accountants?

A. Integrity
B. Professional competence and due care
C. Timeliness
D. Objectivity

Answer: C

Cima F1 Exam Question No 29

Question No 29:

A customer of CDF went bankrupt on 15 January 2014 owing CDF $75,000. CDF’s profit for the year ended 31 December 2013 was $750,000 and its statement of financial position at that date showed trade receivables of $300,000. CDF has not provided for any bad debts for the year ended 31 December 2013. This is material but not fundamental.
Which ONE of the following types of audit report should the external auditor of CDF issue for the financial statements of CDF for the year ended 31 December 2013?

A. A modified report with a qualified opinion in respect of receivables.
B. A modified report with a disclaimer opinion.
C. A modified report with an adverse opinion.
D. A modified report with an emphasis of matter paragraph.

Answer: A

Cima F1 Exam Question No 28

Question No 28:

Which of the following methods could be used by a tax authority to reduce tax evasion and avoidance?

A. Increase tax rates to compensate for losses due to evasion.
B. Reduce penalties for avoidance.
C. Reduce requirements to have tax returns audited.
D. Simplify the tax structure, minimizing allowances and exemptions.

Answer: D

Cima F1 Exam Question No 27

Question No 27:

Assume that Countries M; N; O and P each has a double tax treaty with each other based on the OECD model tax convention.

• JZ is incorporated in Country M
• JZ earns the majority of its revenue from Country N
• JZ holds its management board meetings in Country O
• JZ raises most of its finance and operating capital in Country P

In which country will JZ be deemed to be resident for tax purposes?

A. Country M
B. Country N
C. Country O
D. Country P

Answer: C

Cima F1 Exam Question No 26

Question No 26:

R, a trainee management accountant is employed by JH. R has prepared the draft annual
financial statements for JH and presented them to JH’s Chief Executive prior to the executive
board meeting. The Chief Executive has told R that the profit reported in the financial
statements is too low and must be increased by $500,000 before the financial statements can
be approved by the executive board.
Which ONE of the threats listed below would apply to R in this situation, according to the
CIMA code of ethics for professional accountants?

A. Advocacy threat
B. Self-review threat
C. Intimidation threat
D. Self-interest threat

Answer: C

Cima F1 Exam Question No 25

Question No 25:

PH purchased 100,000 of its own $1 equity shares on the stock market for $105,000. PH classified the shares as “treasury shares”. PH still held the treasury shares at the year end.
How should PH present the treasury shares according to IAS 32 Financial Instruments, Presentation?

A. As a non-current asset investment $100,000
B. As a non-current asset investment $105,000
C. As a deduction from equity $100,000
D. As a deduction from equity $105,000

Answer: D

Cima F1 Exam Question No 24

Question No 24:

Taxes commonly used by many countries include:

(i) import duty payable on specific types of imported goods;
(ii) individual income tax, usually deducted at source;
(iii) corporate income tax;
(iv) value added tax.

Which of the above would normally be defined as direct taxation?

A. (i) and (ii)
B. (i) and (iv)
C. (ii) and (iii)
D. (ii) and (iv)

Answer: C

Cima F1 Exam Question No 23

Question No 23:

A withholding tax is:

A. Tax deducted at source before payment to a recipient in a foreign country.
B. Tax on profits that is then paid out net as a dividend to equity shareholders.
C. Tax paid to local tax authorities with an amount withheld from payment.
D. Tax withheld from employees’ salaries with salaries paid to them net of tax.

Answer: A

Cima F1 Exam Question No 22

Question No 22:

ABC is registered for tax in Country X.
ABC purchases goods and services from suppliers, including VAT at standard rate and sells goods to customers, including VAT at standard rate.
The formal incidence of the VAT is on:

A. ABC’s customers
B. ABC’s suppliers
C. ABC
D. Country X’s tax authority

Answer: C

Cima F1 Exam Question No 21

Question No 21:

PH purchased 100,000 of its own $1 equity shares on the stock market for $105,000. PH classified the shares as “treasury shares”. PH still held the treasury shares at the year end.
How should PH present the treasury shares according to IAS 32 Financial Instruments, Presentation?

A. As a non-current asset investment $100,000
B. As a non-current asset investment $105,000
C. As a deduction from equity $100,000
D. As a deduction from equity $105,000

Answer: D

Cima F1 Exam Question No 20

Question No 20:

According to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which ONE of the following is a change in accounting policy?

A. The depreciation method of vehicles being changed from straight line to reducing balance.
B. The provision for warranty claims being recalculated using a different method.
C. Recognising a provision for a legal claim which had been disclosed as a contingent liability in the previous year’s financial statements.
D. Presenting depreciation in cost of sales which had previously been presented in administrative expenses.

Answer: D

Cima F1 Exam Question No 19

Question No 19:

At its financial year end HX has an outstanding legal action against it by a large multinational entity. It is highly probable that the legal action will be successful and HX will have to pay substantial damages. HX has refused to provide for these damages.
In the opinion of the auditor, failure to make this provision means that the financial statements are seriously misleading.
What type of audit report will be issued in this situation?

A. A modified report with an adverse opinion
B. An unmodified report with an emphasis of matter paragraph
C. A modified report with a disclaimer of opinion
D. A modified report with a qualified opinion

Answer: A

Cima F1 Exam Question No 18

Question No 18:

What type of audit report will be issued in this situation?

A. A modified report with an adverse opinion
B. An unmodified report with an emphasis of matter paragraph
C. A modified report with a disclaimer of opinion
D. A modified report with a qualified opinion

Answer: A

Cima F1 Exam Question No 17

Question No 17:

MX suffered a major fire in its central warehouse on 14 March 2014. Inventory held in the warehouse with a value of $700,000 was either damaged or destroyed. An external audit of MX’s financial statements discovered that the loss had not been recognized in MX’s financial statements. This is regarded as material but not pervasive.
What type of audit report should the auditor issue for MX’s financial statements for the year ended 31 March 2014?

A. A modified report, with a qualified opinion based on insufficient appropriate evidence.
B. A modified report, with a qualified opinion, with a qualified “except for” opinion.
C. An unmodified report with an unqualified opinion.
D. An unmodified report with an emphasis of matter paragraph relating to the inventory.

Answer: B

Cima F1 Exam Question No 16

Question No 16:

Under the current structure of regulatory bodies, which organisation is responsible for seeking out the views of its members and passing them on in summary form to the International Accounting Standards Board (IASB)?

A. IFRS Interpretations Committee
B. International Organization of Securities Commissions
C. IFRS Foundation
D. IFRS Advisory Council

Answer: D

Cima F1 Exam Question No 15

Question No 15:

What are the Tax on trading income?

Taxable income = Accounting profit - income exempt from tax or taxed under other rules + disallowable expenses (entertaining customers, gift aid payments, political donations in the UK) + accounting depreciation - tax depreciation

Cima F1 Exam Question No 14

Question No 14:

Define the meaning of the term “an indirect tax”?

An indirect tax is one that is levied on one person or entity with the intention that the tax burden is passed on to another person/entity.

Cima F1 Exam Question No 13

Question No 13:

What is Tax on trading income?
Taxable income =
Accounting profit
- income exempt from tax or taxed under other rules
+ disallowable expenses (entertaining customers, gift aid payments, political donations in the UK)
+ accounting depreciation
- tax depreciation

Cima F1 Exam Question No 12

Question No 12:

What are the 2 types of direct taxes?

Answer:

• Tax on trading income
• Capital tax

Cima F1 Exam Question No 11

Question No 11:

What is Tax bases?

Answer:

• Income or profits (income and corporation tax in the UK)
• Assets (capital gains tax)
• Consumption (sales tax)

Cima F1 Exam Question No 10

Question No 10:

What are the Source of tax rules?

Answer:

• Legislation produced by national governments
• Precedents based on previous legislation (interpretations, bulletins)
• Directives from the EU
• Agreements between different countries (double tax treaties)

Cima F1 Exam Question No 9

Question No 9:

What are the 3 types of taxes (by rate) ?

• Progressive

• Proportional

• Regressive
  

Cima F1 Exam Question No 8

Question No 8:

What is Tax gap?

Gap between the tax theoretically collectable and the amount actually collected

Cima F1 Exam Question No 7

Question No 7:

What is Hypothecation?

Answer:
Certain taxes are devoted entirely to certain types of expenditure (road tax, London congestion charge)

Cima F1 Exam Question No 6

Question No 6:

Accounting depreciation is replaced by tax depreciation?

A. To reduce the amount of depreciation allowed for tax
B. To increase the amount of depreciation allowed for tax
C. To ensure that standard rates of depreciation are used by all organisations for tax
purposes
D. So that the government can more easily manipulate the amount of tax organisations pay

Answer: C

Cima F1 Exam Question No 5

Question No 5:

What is  2 types of incidence?

- Formal incidence: the person who has direct contact with the tax authorities
- Actual incidence: the person who actually ends up bearing the cost of the tax

Cima F1 Exam Question No 4

Question No 4:

What is Tax incidence?

Answer: 

The distribution of the tax burden (who is paying the tax)

Cima F1 Exam Question No 3

Question No 3:

2 types of taxes?

Answer:

1. Direct: imposed directly on the person or enterprise required to pay the tax (tax on personal income, on business profits, on disposal of chargeable assets): income tax, capital gains tax, corporation tax
2. Indirect: imposed on one part of the economy with the intention that the tax burden be passed on to another (sales tax, VAT)

Cima F1 Exam Question No 2

Question No 2:

What are the 3 major principles of good tax policy?

Answer:

1. Equity
2. Efficiency (PAYE system)
3. Economic effects

Cima F1 Exam Question No 1

Question No 1:

Characteristics of a good tax according to Adam Smith

1. Fair (reflect person's ability to pay)
2. Absolute (certain not arbitrary)
3. Convenient (easy to pay)
4. Efficient (low collection costs)