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Question 1

What is IAS 1 presentation objective and purpose

Answer 1

Objective - basis for presentation of general purpose financial statements, requirements for presentation of financial statements, guidelines for the structure and minimum requirements for their content.
Purpose – to give useful information to investors in particular to help and make economic decisions

Question 2

What is fair presentation

Answer 2

Requires faithful representation of effects of transactions, other events and conditions. In extremely rare circumstances in which management concludes that compliance with a requirement in a standard or an interpretation would be so misleading, entity shall depart from that requirement

Question 3

What is going concern

Answer 3

Financial statements shall be prepared on a going concern basis unless management either intends to liquidate entity or to cease training or has no realistic alternative but to do so

Question 4

What is accrual basis

Answer 4

Entity shall prepare its financial statements except for cash flow information using accrual basis of accounting

Question 5

What is offsetting

Answer 5

Assets, liabilities, income and expenses shall not be offset unless required or permitted by a standard or an interpretation. It’s important that they are reported separately

Question 6

What is consistency

Answer 6

Entity shall retain presentation and classification of items in financial statements from one period to next

Question 7

What statements are included in presentation

Answer 7

Statement of financial position
Statement of profit or loss and other comprehensive income
Statement of changes in equity
Statement of cash flows

Question 8

What are the gains and losses on foreign currency

Answer 8

Transactions
Unsettled monetary balances
Settlement of monetary balances
Financial statements of foreign subsidiaries

Question 9

Which items go into other comprehensive income under IFRS


Answer 9

Currency gains/losses on foreign subsidiaries
Revaluations on PPE and some financial assets
Pension remeasurements

Question 10

What does the statement of changes in equity include

Answer 10

Total from statement of profit and loss and other comprehensive income
Policy changes and error corrections
Contributions from and distribution to owners (dividends)

Question 11

What is earnings per share

Answer 11

Ratio gives idea of what business has achieved during year for benefits of all ordinary shareholders divided by number of such shares. Earnings is net profit available to ordinary shareholders. In mini companies, this is profit or loss, profit before other comprehensive income. Some companies have issued preference shares so preference dividends paid should be deducted in calculation of earnings in order to calculate profit available for ordinary shareholders. 

Question 12

What does price/earnings ratio represent

Answer 12

How much must be paid in order to acquire 1 share

Question 13

What is cash and cash equivalents

Answer 13

Cash compromises cash on hand and demands deposit. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value

Question 14

What are the three main headings of cash flow statements

Answer 14

Operating, investing, financing

Question 15

What is the cash flow statement

Answer 15

Reports cash flows during period classified by operating, investing and financing activities. Direct method (gross cash) or indirect method (adjusted income statement)

Question 16

How do you measure operating cash flow

Answer 16

Measure cash coming from customers paid to suppliers however companies choose to start with net profit figure and then adjust for all income and expense that was not in cash. For example, since depreciation and impairment were deducted in calculating net profit, they must be added back in order to calculate operating cash flows

Question 17

How can interest and dividends be classified

Answer 17

Cash flows from interest and dividends received and paid shall each be disclosed separately. Each shall be classified in a consistent manner from period to period as either operating, investing or financing activities. Non-cash transactions should be disclosed elsewhere, not in cash flow statement

Question 18

What are accounting policies

Answer 18

Specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.

Implementation guidance should be considered but is not a requirement – when IFRS specifically applies to a transaction, other event or condition, accounting policy or policies apply to that item shall be determined by applying IFRS.

Guidance that is an integral part of IFRS is mandatory. Guidance that is not an integral part of IFRS does not contain requirements for financial statements.

Question 19

Selection of policies immaterial departures 

Answer 19

Immaterial departures allowed unless designed for a particular effect – Those policies need Not to be applied when effect of applying them is immaterial. However, it is inappropriate to make, or leave uncorrected, immaterial departures from IFRSs to achieve a particular presentation of entities financial position, financial performance or cash flows

Question 20

Selection of policies choose policies

Answer 20

Choose policies by reference to framework and any analogous standards – in absence of a standard or an interpretation that specifically applies to a transaction, other events or condition, management shall use its judgement in developing and applying in accounting policy.
May use standards or other bodies if no standard is applicable.
Apply policies consistently to similar transactions

Question 21

When are changes in policies allowed

Answer 21

When required by an accounting standard or give me us more relevant information. Changes in measurements are covered by IAS 16/38. There are two ways of doing change retrospective (change applies to past too) prospective (from now on). Change caused by an IFRS should follow rule in that IFRS – IFRS 16 – nearly all leases including old ones became finance leases. Other changes apply retrospectively unless impracticable. Impracticable If f(x) not determinable previous intent has to be estimated or impossible to estimate the past then disclose reasons, amounts, effect on comparative. Double entry for retrospective adjustment is via statement of changes in equity

Question 22

What are changes in estimates

Answer 22

As a result of uncertainties in business activities, many items and financial statements cannot be measured with precision but can only be estimated.
Estimation involves judgements based on latest available, reliable information. When in doubt, the change is a change of estimates not the policy – perspective. Includes effects in current periods, and future periods where relevant. Include in same line as estimates. Disclose nature and amount.

Question 23

What is correction of errors

Answer 23

Retrospective correction unless impracticable. An entity shall correct material prior period errors retrospectively in first set of financial statements authorised for issue after their discovery by restating comparative amounts for prior periods presented in which error occurred or if error occurred before restating opening balance of assets liabilities and equity finance prior period presented. Double entry for retrospective adjustments via statement of changes in equity. Disclose the nature and amount.