Accounting Analysis Flashcards
Who is required to organise the set of accounts?
Directors.
Who must also make other disclosures like the annual statement.
Remember the set of accounts are the 3 financial statements
5 elements of financial statements
Revenue
Expenses
Liabilities
Asset
Equity - amount invested by owners plus earnings made by the company
What are the separate purposes of the individual statements in the set of accounts?
- Statement of financial position (balance sheet)
Assets= equity - liabilities
This gives a snapshot of the company’s financial wellbeing - Income statement
Revenues vs expenses
Shows the trading activities of the period, whether the activities have earned a profit or loss.
This statement should account for the difference between the last and current balance sheet. - Cash flow statement
Divided into 3 sources : operations, investing and financing.
Shows where money is being generated and utilised.
Plus to find the overall change in cash we net the 3 sources.
What is goodwill in accounting terms
When the group accounts are presented, they combine the assets (and liabilities of the parents and subsidiary), if the Investment>Net assets of the subsidiary, there is value unaccounted for. The excess is marked as an asset on the group accounts and represents intangible value/recognises future earnings potential/represents the premium the parent paid for the child (premium because the assets outweigh the investment and thus not fair market value)
What extra accounts must be produced if a company has a controlling stake in another company?
Group accounts must be produced by the parent company on top of their own set of accounts
How are group accounts formed? How are the 2 companies tied together?
They are treated as a single entity and their components of financial statements are added together. (assets, liabilities,revenues,expenses,equity)
How, and on what statements, are non-controlling interests reflected in the group accounts?
Non-controlling interest is the ownership of the assets of the child company by those that do not control it (not the parent). This interest is reflected by detailing the extent of the Net INCOME and ASSETS belong to the non-controlling interests and these are reflected in the income statement and statement of financial accounts respectively.
What are 2 other names for group financial statements
group accounts and consolidated financial statements:
Just remember that there are multiple names, GROUP or CONSOLIDATED
What is equity?
What is owners equity?
The value of shares issued?
Book value of a company (assets-liabilities)
How is the increase from a revalued non-depreciating tangible asset recorded in the statement of financial position?
It is recorded in a seperate account called the revaluation reserve this is an addition to the equity section of the balance sheet.
Why does depreciation not impact the revaluation account?
Depreciation is recorded by reducing the NBV on the balance sheet, not by reducing the revaluation reserve. In fact, the depreciating assets are not revalued, they are just depreciated using a depreciation model. Only assets that aren’t depreciating are revalued and recorded on the revaluation account
How is purchased goodwill accounted for in a different way to other non-current intangible assets
Purchased Goodwill- is capitalised (Recorded as an asset/capital on the balance sheet), is not amortised and can only suffer impairment rather revaluation
Whereas, usuallly;
These assets are recorded on the balance sheet as assets and are amortised over time. The amortisation is recorded on the balance sheet as an expense.
How are the set of accounts impacted by depreciation and amortisation?
-Statement of Financial Position: the initial cost is capitalised and written as an asset on the balance sheet. Asset=Cost on the balance sheet, this cost is reduced by the Dc annually, the result is the Net Book Value
- Income Statement: The reduction in value is then entered as an expense (like a wage) to the income statement. (Dc)
- Cash Flow- Unaffected
This reserve cannot be distributed as a dividend but can be converted into a bonus issue of ordinary shares
Capital Reserves
Name the type of expenditure which is accounted for on the statement of financial position and explain its difference to that recorded on the Y statement
Capital expenditure is recorded on the statement of financial position, the purchase on non-current assets. As such does not immediately impact the income statement.
Whereas, REVENUE EXPENDITURE, does immediately impact the statement of Y, wages and so forth.
