CIMA CS3 Practice Test Questions Answers

A month has passed since you submitted the report requested by William Seaton, Director of Finance on the Board’s proposals.

You have received the following email:

From: William Seaton, Director of Finance

To: Finance Manager

Subject: Shale oil

Hi,

One of the geologists made a presentation to the Board, proposing that we investigate the extraction of shale oil deposits. I have attached the slides that were used as the basis for this presentation.

I need you to work on a response to this document:

Firstly, what risks do you envisage in our entry to the shale oil business?

Secondly, what do you regard as the key factors that we should consider when deciding on proceeding with this

proposal? Please justify your selection.

Thirdly, what factors should we take into account when deciding on which country or countries to commence this

side of the business?

Finally, what are the challenges in creating a team of technical staff to lead our efforts in this area?

William

The presentation slides can be found by clicking on the Reference Materials button.

You received a telephone call at home early in the morning, asking you to check your emails. The following email was waiting for you:

From: William Seaton, Director of Finance

To: Finance Manager

Subject: Public relations crisis

Hi,

This email arrived from the Head of our Middle East office just now. They are a few hours ahead of us, so he rang me at home to make sure that I had seen his message.

We have a few hours before the news article will be published, so I need to make the best use of that time in order to limit the damage to Slide. Your priority is to protect our reputation because I have already woken up the engineers and geologists and they are going to deal with the actual oil spillage.

I am not thinking too clearly, so I need you to provide some initial thoughts on the following:

Should we use our business relationship with Business News to have them withdraw the story? We are a major advertiser and we spend millions with them every month. What are the advantages and disadvantages?

Should we respond with the facts as we know them? All we know for certain is that there have been reports of oil contamination in an area that has countless oil facilities nearby, and so we could deny all responsibility, at least until our experts have had the chance to get there and to investigate.

If we do decide to make a public announcement then we will need to have a plan in place. We need to assemble a team to deal with the press. How should we structure our media response team?

What are the key factors that the Board should consider when communicating with the press? Explain why the factors that you have identified are important.

I realise that it is still very early, but I need your thoughts very quickly.

Thanks

William

The email referred to above can be found by clicking on the Reference Materials button.

Memorandum of Understanding between Fouce Oil and Slide

It is proposed that Fouce Oil and Slide will temporarily combine their exploration activities, with Slide taking overall control in recognition of the greater expertise of its professional exploration staff.

This collaboration will work as follows:

1.Slide will take responsibility for the management and operation of all future exploration activities for the two companies, with effect from 1 October 2015.

2.Fouce Oil will second all of its professional oil exploration staff to Slide. Fouce will continue to employ these staff and will pay their salaries.

3.Slide will brief Fouce Oil’s professional oil exploration staff on all operational matters relating to exploration activities for the duration of this arrangement.

4.The provisions of paragraph 3 will apply to any projects in which Slide participates with third parties on a farm-in or other joint venture basis.

5.In recognition of Slide’s greater expertise, Fouce Oil will offer its entire portfolio of existing exploration rights to this venture, without any charge to Slide. Fouce Oil will also pay for 55% of any and all exploration costs, leaving Slide responsible for the remaining 45%.

6.The revenues from all successful discoveries will be shared equally by Slide and Fouce Oil. In the event that either party wishes to sell an oil well, the other will have the option of purchasing the other’s rights for 50% of the well’s agreed valuation.

7.This arrangement will be subject to review at the end of five years and annually thereafter. In the event that either party wishes to discontinue the arrangement, all ongoing exploration projects will be drawn to an orderly conclusion.

Signed

Thomas Yip, Chief Executive Officer, Fouce Oil

Andrew Jones, Chief Executive Officer, Slide

14 May 2015

The following email has been forwarded to you by William Seaton, Director of Finance:

From: William Seaton, Director of Finance

To: Finance Manager

Subject: Yesterday’s Board meeting

Hi,

One of my fellow Board members made a brief presentation to the Board. I am attaching the slides that were used in this presentation.

I have to say that I thought that some of the advice being offered to the Board was incorrect, but I would rather make a positive contribution to the discussion and so I said very little.

I need you to email me your thoughts on the following:

Your views on the presentation relating to tax matters

Your views on the briefing relating to the decision making process

Your views on the briefing’s recommendations on driving performance

Finally, an alternative briefing note on driving performance. Ideally, that should be two or three headings, with a

clear explanation for each.

As usual, this is urgent. Many thanks for your help so far with this project.

William

The slides can be found by clicking on the Reference Materials button.

The Director of Finance, William Seaton, has stopped you in the corridor:

“Your report was really helpful, but the Board is still considering the implications of that email from Jan Archibald at Fouce Oil. I need to make a more detailed report to the Board and I would like you to draft it for me.

I know that we have owned and operated oil wells in the past, but that has always been with the intention of finding a buyer who is prepared to pay a realistic price. We have chosen never to think about the implications of keeping wells.

I need a report from you that covers the following issues:

The key political risks of retaining our interest in these oil wells, with particular emphasis on high consequence, high likelihood risks.

A suitable response to each of your political risks.

An overview of how changes in the global economy and the demand for oil could affect the decision to proceed.

The challenges associated with putting together a management team to take charge of the production side of this proposed new

strategy.

I realise that this is a lot to ask of you, but I need you to move quickly because of the interest from our biggest shareholder.”