Accounting Flashcards
In which act are the legal requirements relating to annual financial reporting by set out, and what is its most basic requirement?
The Companies Act 2006
- Companies should keep adequate accounting records that allow the presentation of a ‘true and fair view’.
What is the role of the Financial Reporting Council (FRC)?
Issues UK accounting standards (called Financial Reporting Standards (FRS) which are used by companies that are not using IFRS)
What is the role of the International Accounting Standards Board (IASB)?
Issues international accounting standards (IFRS).
Which two things do small-cap companies have to provide their shareholders with in their annual statements?
- Statement of Comprehensive Income (profit/loss)
- Balance Sheet (Statement of ‘financial position’)
Which five things do medium-cap companies have to provide their shareholders with in their annual statements?
- Statement of Comprehensive Income (profit/loss)
- Balance Sheet (Statement of ‘financial position’)
- Cash Flow Statement
- Director’s report
- Auditor’s report
Which seven things do all listed companies have to provide their shareholders with in their annual statements?
- Statement of Comprehensive Income (profit/loss)
- Balance Sheet (Statement of ‘financial position’)
- Cash Flow Statement
- Director’s report
- Auditor’s report
- Statement of Changes in Equity (SOCIE)
- Operating and Financial Review
According to the Companies Act 2006, what sized companies are exempt from filing a full set of accounts?
Small and Medium sized companies
When is a company considered a small-cap?
2/3 of following:
- Turnover: < £10.2 million
- Balance Sheet (total assets): < £5.1 million
- Average number of employees: 50
When is a company considered a medium-cap?
2/3 of following:
- Turnover: < £36 million
- Balance Sheet (total assets): < £18 million
- Average number of employees: 250
What is the function of an Auditor’s report?
To assess whether the company’s financial statements give a true and fair view and apply with accounting standards.
If they are satisfied, they give an unmodified opinion. If they are dissatisfied, they will give a modified opinion.
What are the assets of a company equal to?
Assets = Equity + Liabilities
Assets - Liabilities = Shareholder’s interest (equity)
What are current assets?
Assets that are continuously circulating within the business.
e. g.
- Assets intended for sale/consumption (e.g. raw materials)
- Assets held for trade (e.g. shares bought for resale)
- Cash/cash equivalents (e.g. short-term investments)
What are non-current assets?
Assets expected to give rise to an inflow of economic benefits on a continuing basis (i.e. for more than one accounting period).
What is the operating cycle?
The time between the acquisition of assets for processing and their realisation in cash (usually less than a year).
What is depreciation?
The cost of an asset’s value falling over time.
What is the “matching-concept’”?
Spreading the cost of an asset over its lifetime, as it depreciates.
What is the residual value of an asset?
The estimated value of an asset at the end of its useful value.
How do you calculate the annual depreciation of an asset using the straight line method?
(Initial cost - Residual Value) / Useful life
(Carrying amount - Residual Value) / Remaining Useful
What does the carrying amount of an asset refer to?
Its current value (i.e. the book value)
Carrying amount = (Annual charge x Remaining Useful Life) + Residual Value
How do you calculate the annual depreciation of an asset using the reducing balance method?
Apply a fixed % to the carrying amount of the asset at the start of the year.
How do you calculate the value of an asset at the point of disposal?
Gain/Loss = Disposal - Carrying Amount
What does goodwill refer to?
The additional value of a company that is not recognised on a balance sheet. e.g. reputation, technical expertise etc.
What three things does an inventory (or stock) consist of?
- Raw materials
- Work in progress
- Finished goods held for resale
What does IAS 2 require regarding inventories?
That they are carried at the lower of cost and net realisable value (NRV)