14- Company Accounts Flashcards
What are the 4 mandated documents under Companies Act 2006?
- Balance sheet
- Income statement
- Director’s report
- Auditor’s report
What are the 2 conclusions on the accounts that the auditor reports to shareholders?
- Whether they’re properly prepared
- Whether they give a true and fair view
What is the Accounting equation, derived from the balance sheet?
Assets = Equity + Liabilities
What does the Balance sheet show?
The condition of the company as at the balance sheet date
What are the 2 halves the Balance sheet is composed of?
Total assets | Capital & reserves + Liabilites
What is the difference between capital and revenue expenditure?
Capital expenditure is money spent to create future benefits, whereas revenue expenditure covers day to day costs
What are non-current assets?
Assets intended to be kept for greater than one year
What are Intangible non-current assets?
Expected to generate future revenue but have no physical substance e.g. patents
What are Tangible non-current assets?
Expected to generate future revenue and have physical substance e.g. factories
What are non-current investments?
Generally shares in other companies intended to be held for greater than one year
What are current assets?
Assets held for conversion into cash
What does Inventory incorporate?
Raw materials, finished goods, etc
What are receivables?
The amount the company is owed on the balance sheet date
What is share capital?
Nominal value of total shares in issue
What is share premium?
Any excess above the nominal value raised on issue
What are Reserves?
The amount belonging to shareholders that is retained by the company
What is the Revaluation reserve?
Represents the cumulative amount by which non-current asset values have increased
What are Retained earnings?
Running total of profits not distributed as dividends
What does the Statement of changes in equity outline?
Explains any change in the Equity section of the balance sheet (capital & reserves) e.g. it will give an account of rights issues and share buy-backs
What does the Statement of comprehensive income outline?
Discloses income beyond that generated through the activities of the company e.g. incidental FX PnL, pension plan PnL
What are Current liabilities
Amount owed by the company and due for payment within one year e.g. trade payables
What are Long-term liabilities?
Amount owed by the company and due for payment after one year e.g. long-term bank loans
What are Contingent liabilities?
Uncertain liabilities, so are disclosed in a note to accounts not on the balance sheet itself
What is the formula for Net Book Value (NBV)?
NBV = Cost - Accumulated depreciation
What is the Annual depreciation charge formula (straight line)?
Annual depreciation charge = (Cost of asset - Residual value of asset)/Useful life of asset
What is the Annual depreciation charge formula (reducing balance)?
Depreciation charge = 1-n√(expected residual value/original cost)
What are the 3 methods of inventory valuation?
- Weighted average
- First in first out (FIFO)
- Last in first out (LIFO)
How does weighted average inventory valuation work?
Inventory drawn down proportionally
How does First in first out (FIFO) inventory valuation work?
Old inventory assumed to be used first
How does Last in first out (LIFO) inventory valuation work?
New inventory assumed to be used first
What is Turnover?
Income generated by a company from selling its goods and services- recognised at point of sale or apportioned over life of project
What are Cost of sales?
Costs directly associated with the cost of producing a product or service
What is the formula for Operating/Trading profits/Profit before interest and tax (PBIT)?
PBIT = Turnover - Cost of sales - Other operating costs - General costs of running a business
How does an increase in the following cash flows affect operating profits?:
-Depreciation charges
-General provisions
-Inventory
-Receivables
-Payables
-Increases
-Increases
-Decreases
-Decreases
-Increases
What is Free cash flow?
Cash flows available for distribution to the owners of a firm’s securities
What is Enterprise cash flow (FCFF)?
Comparable cash flow irrespective of capital structure
What is the Enterprise cash flow (FCFF) formula?
FCFF = Net income + noncash charges + net interest payments - investment in fixed capital - investment in working capital
What is Equity cash flow (FCFE)?
Excludes cash owed to lenders
What is the Equity cash flow (FCFE) formula?
FCFE = FCFF - net interest - net borrowing
How do Group accounts work?
Group = Parent company + subsidiaries
When is a subsidiary company created?
When share ownership lies above 50%
When is an associate company created?
When share ownership lies between 20% & 50%
