Deal of The Day! Hurry Up, Grab the Special Discount - Save 25% - Ends In 00:00:00 Coupon code: SAVE25
Welcome to Pass4Success

- Free Preparation Discussions

CIMA Exam CIMAPRA19-F03-1 Topic 4 Question 99 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 99
Topic #: 4
[All CIMAPRA19-F03-1 Questions]

DFG is a successful company and its shares are listed on a recognised stock exchange. The company's gearing ratio is currently in line with the industry average and the directors of DFG do not want to increase the company's financial risk. The company does not carry a large cash balance and its shareholders are not expected to be willing to support a rights issue at this time

LMB is a small services company owned and managed by a small board of directors who are going to retire within the next year

DFG wishes to purchase LMB and has approached LMB's owners, who are broadly open to the proposal, to discuss the bid and the consideration to be offered by DFG. LMB's owners explain to DFG that they are also keen to defer any tax liabilities they would be subject to on receipt of the consideration.

Based on the information provided, which of the following types of consideration would be most suitable to finance the acquisition?

Show Suggested Answer Hide Answer
Suggested Answer: C, D, E

Contribute your Thoughts:

Sanda
19 hours ago
Option C seems the most straightforward, but it might not be the best fit for LMB's owners' tax deferral needs. I'd go with option D to balance the cash consideration with the share component.
upvoted 0 times
...
Deangelo
2 days ago
I think option D is the best choice here. The owners of LMB can defer their tax liabilities by receiving a portion of the consideration in DFG shares, and the earn-out arrangement provides an incentive for them to ensure a smooth transition and continued success of the business.
upvoted 0 times
...
Tish
5 days ago
I'm not sure about option D. Wouldn't using cash be a safer option for DFG?
upvoted 0 times
...
Pearly
6 days ago
I agree with you, Rosamond. Using DFG shares with an earn-out arrangement could help defer tax liabilities for LMB's owners.
upvoted 0 times
...
Rosamond
11 days ago
I think option D could be a good choice.
upvoted 0 times
...

Save Cancel