Accounting Flashcards
What are the fundamental precepts of accounting?
To record an organisations transactions so its dealings can be planned and reported.
What are bodies sole?
Consists of sole traders and partnerships which have no legal requirement to produce accounts.
What are bodies corporate?
Covers all other forms of organisation and are recognised by law as being a legal entity separate from their owners.
Who sets UK reporting standards?
Financial Reporting Council
Who sets International Financial Reporting Standards (IFRS)?
The International Accounting Standards Board (IASB) is an independent body.
How must all UK listed companies prepare their consolidated accounts?
Using UK adopted IFRS.
What must an auditor report to shareholders?
Whether the reports and accounts have been prepared properly.
Why issue a qualified report?
Where there is limitation in scope or disagreement.
How can balance sheet accounting be expressed?
Shareholder funds + long term liabilities + current liabilities = non current assets + current assets.
Where are tangible non current assets charged?
To the income statement as depreciation each year.
What does depreciation do to the net book value?
It decreases the net book value of the asset in the balance sheet.
How is straight line depreciation calculated?
(Original cost - expected residual value)/ expected useful life.
How does the reducing balance method calculate depreciation?
As a constant percentage of the last period book value.
How are inventories valued?
First in first out, last in first out or a weighted average.
What is the most common inventory valuation method in the UK?
First in First out. Last in first out not permitted under IFRS and Generally Accepted Principles in the UK (UK GAAP)
What is goodwill?
The value by which the value of a business exceeds the value of its assets less liabilities. Normally occurs when another company is acquired.
How is goodwill treated under UK GAAP?
Capitalised as an asset on the balance sheet and written down through an annual change to the P&L account, where it cannot be maintained indefinitely.
Under International Accounting Standards (IAS) how is goodwill treated?
Not amortised but it subject to an impairment test each year.
What are the three parts of reserves?
Share premium, revaluation reserves and other reserves.
IAS 19 is the standard for what?
Defined benefit pension costs and it brings the schemes surplus or deficit directly into the balance sheet of the sponsoring firm.
What are post balance sheet events?
Fed
What is a fundamental principle of IAS 32?
That a financial instrument should be classified as either financial liability or equity instrument according to substance of contract not its legal form.
What does IAS 32 require a company to do?
Describe its financial risk management objectives and policies including hedging policies.
What is IFS 9?
Include requirements for financial instrument recognition and measurement, impairment derecognition and generally hedge accounting.
What is IFS7?
Requires disclosure of information about significant of financial instruments to an entity and nature and extent or risks arising from those financial instruments.
What does the income statement do?
Provides an information on performance of business over specified period of time.
How is revenue measured?
At the fair value of the consideration received or receivable.
Under IAS a company should present a statement of changes in equity, what should it summarise?
Movement in equity accounts during the year, namely share capital, Share premium, retained earnings, revaluation surplus, unrealised gains on investments.
What is the cash flow statement?
Summary of cash movements during the year rather like a very summarised bank statement.
How do you achieve a reconciliation between profit and net cash flow?
If depreciation increases add to cash flow, subtract the receivables if they increase, add payables to cash flow if they increase, if investors increase subtract from cash flow.
What is a subsidiary?
Owned by a parent company either wholly or partially owned so own more than 50% but less than 100% of share capital.
How does any non owned share capital of a subsidiary appear in group account?
Minority interest.
What is the percentage holding to be classed as a subsidiary?
Over 20% but less than 50%. Treated as subsidiary where the parent has significant influence assumed over 20%.
What is a holding that does not lead to significant influence be classed as?
An investment
What is ROCE ratio?
Operating profit/ capital employed
What is ROE formula?
Net income/ shareholders equity
What does operational gearing measure?
The sensitivity of products to sales revenue (sales revenue- variable costs) : operating profits
What does gearing ratio measure?
Extent to which debt used to finance company. Debt/ current liabilities
What is the current ratio?
Current assets/ current liabilities
What is the quick ratio?
(Current assets - inventory) / current liabilities
