Accountancy Principles

Question 1

What are the three types of financial statement you may come across relating to a company?

Answer 1

Income Statement (Profit and Loss)
Financial Statement (Balance Sheet)
Cashflow Statement

Question 2

What is an asset?

Answer 2

A resource that a company owns or controls. Asset can be cash, investments, properties.

Question 3

What is the difference between financial and management accounts?

Answer 3

Financial are to be audited and reported publicly.

Management are for internal purposes and are not audited.

Question 4

What do you understand by the term Generally Accepted Accounting
Principles (GAAP)?

Answer 4

A set of accountancy reporting standards that govern the presentation of financial statements. They provide a common framework to promote consistency, transparency and ability to compare companies

Question 5

What is a liability?

Answer 5

Something which a company or entity owes. For instance, borrowings, loans, overdraft, debtors

Question 6

Which reporting framework do public limited companies have to comply with?

Answer 6

It depends on the jurisdiction of the country or region the PLC is in. In UK, it is the IFRS.

Question 7

How would you assess the financial strength of an entity, e.g. for a
valuation?

Answer 7

Analyse profitability, cashflow, liquidity, asset quality,

Question 8

Can you tell me about a common financial measure?

Answer 8

Profit Margin = Net Income / Annual Sales

Question 9

What is the Acid Test?

Answer 9

Measures short term liquidity and ability to pay short term debts quickly.

(Cash + Cash equivalents + Marketable Securities + Accounts Receivable) / Current Liabilities

Question 10

What is ROCE or ROI?

Answer 10

Return on Capital Employed
Ability of company to generate profits from capital invested into operations.

ROI = Profit / Assets

Question 11

What is Working Capital Ratio or Current Ratio?

Answer 11

Companies ability to cover its short term obligations with its current assets

Current Ratio = Assets / Liquidity

Question 12

What is Gearing Ratio or Debt to Equity?

Answer 12

Companies debt compared to equity

Gearing Ratio = Total Debt / Equity

Question 13

What is net assets per share

Answer 13

NAV of a common share of a company.

= total shareholders equity - preferred stock / number of common shares outstanding

Question 14

Can you tell me the role of an auditor?

Answer 14

Independently examine financial statements, providing objective opinion on accuracy

Question 15

When are audited accounts needed and why?

Answer 15

Typically its a statutory requirement to have audited accounts, they provide an independent and objective analysis on the financial health of a company.

Question 16

How do PLC’s accounts differ?

Answer 16

Depending on location and jurisdiction they have more public disclosure, IFRS & GAAP standards, auditing requirements, annual reports.

Question 17

Tell me something you understand from the Companies Act 2006.

Answer 17

Sets out the requirements for preparation and presentation of financial statements including GAAP or IFRS.

Question 18

Tell me what it means to prepare accounts in accordance with IFRS.

Answer 18

Must adhere to guidelines set by the International Accounting Standards Board.
Consistency and Comparability
Fair Presentation
Use of International Standards
Principles based approach
Disclosure Requirements
Fair Value Measurement

Question 19

What is the difference between UK GAAP and IFRS?

Answer 19

nUMBER OF PAGES!

Leases - IFRS indicates leases 12 + months must be considered asset or liability. FRS 102 finance lease or an operating lease.

Intangible Assets - IFRS = indefinite. But FRS 102 no longer than 10 years

Goodwill - IFRS = Not amortised. FRS 102 amortised on systematic bases, no long er than 10 years.

Property - FRS 102 decide whether to capitalise or expense borrowing costs. IFRS costs are always capitalised.
and under IFRS company can hold an investment on depreciated cost or fair value. FRS 102 indicates have to have it as fair value.

Question 20

What is the basis of valuation under IFRS 13?

Answer 20

Fair Value.
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Question 21

What is fair value?

Answer 21

The price that would be received to sell an asset or transfer liability in an orderly transaction between market participants at the measurement date.

Question 22

What has changed in relation to lease accounting / IFRS 16?

Answer 22

Changed how leases are reported in financial statements. Leases have to be recognised as an asset or liability if they are 12 months or longer. Recognised the right of use of the asset.

Question 23

When did the change of lease accounting / IFRS come into effect?

Answer 23

January 2019

Question 24

What is FRS 102?

Answer 24

Financial Reporting standard applicable in the UK and ROI

Question 25

What changes have been made to it IFS 102

Answer 25

Changes to leases and how they are considered on a balance sheet. New guidelines mean recognising a Right of Use in respect of the contract and lease liabilities.

Question 26

How has this impacted upon investment property?

Answer 26

Whether a company wants to measure either cost model or fair value method.

Question 27

What are statutory accounts?

Answer 27

A set of financial statements a company is required, by law, to report their performance and positions. Includes income statements, financial positions, cash lows. Provides transparency and compliance.

Question 28

Why is good financial record keeping important to you?

Answer 28

Promotes transparency, trust, law abiding, keeps stakeholders informed.

Question 29

Tell me three ways you ensure that clients’ money is handled properly.

Answer 29

• money held in exclusively controlled client money account
• ensure only includes client money
• Ensure account has the word ‘client’ on.

Question 30

What RICS guidance or Schemes do you adhere to in doing so?

Answer 30

RICS Client Money Protection Scheme (CMPS)
RICS Professional Standard Client Money Handling 2019

Question 31

Explain your understanding of the VAT domestic reverse charge for
building and construction services.

Answer 31

Subcontractor in CIS scheme will not charge VAT on invoices to VAT registered contrcator on CIS scheme. Instead contracter accounts for VAT as output VAT and input VAT.

Question 32

When do changes to the reverse charge apply from?

Answer 32

March 2021

Question 33

What is the impact of the reverse charge on VAT accounting?

Answer 33

Have to account for VAT in outputs and inputs and in VAT return.

Question 34

Is VAT included in a balance sheet or a profit & loss account?

Answer 34

No