7. Preparation of Financial Statements

Question 1

What is the IAS that covers financial concepts?

Answer 1

IAS1

Question 2

What does IAS1 say in regard to fair presentation?

Answer 2

Financial statements should present fairly the financial position, performance and cash flows of an entity. (Applying IFRSs is presumed to result in fair presentation)

Question 3

What does IAS1 say in regard to going concern?

Answer 3

Financial statements are prepared on a going concern basis unless management intends to liquidate the entity, cease trading, or has no realistic alternative

Question 4

What does IAS1 say in regard to the accruals basis?

Answer 4

Transactions are recorded when they occur, not when cash is paid or received

Question 5

What does IAS1 say in regard to consistency?

Answer 5

Changes in the presentation and classification of items should only occur if 1) there has been a significant change in the nature and operations which means an alternative approach results in a more fair presentation, or 2) it is required by an IFRS

Question 6

What does IAS1 say in regard to materiality and aggregation?

Answer 6

Each material class of items should be presented separately in the financial statements

Question 7

What does IAS1 say in regard to offsetting?

Answer 7

Assets and liabilities cannot be offset against each other unless it is required or permitted by an IFRS

Question 8

What are accounting policies?

Answer 8

The significant principles, bases, conventions, rules and practises applied by an entity in preparing and presenting the financial statements

Question 9

What is current tax?

Answer 9

The amount of income taxes payable (or recoverable) by a company in respect of its taxable profit or loss for a period - a direct tax

Question 10

How do you calculated interest payable from a trial balance?

Answer 10

Loan amount x interest rate minus interest paid

Question 11

What elements of the trial balance make up current liabilities?

Answer 11

Payables, overdraft, tax payable, remaining interest payable

Question 12

What are the 3 entries needed when PPE is revalued?

Answer 12

Debit (Credit) PPE the increase (decrease) in cost value
Debit Accum deprn to clear charges to date
Credit (Debit) the reval surplus the increase (decrease) between the NPV and new fair value

Question 13

What elements of the trial balance make up current assets?

Answer 13

Inventory, cash and cash equivalents, receivables minus any defaulted accounts

Question 14

What category of the P&L does bad debt written off fall under?

Answer 14

Administrative expenses