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APC - Commercial Real Estate > Accounting Principles and procedures > Flashcards

Accounting Principles and procedures Flashcards

1
Q

What is UK GAAP?

A

Financial reporting framework for how company accounts are prepared

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2
Q

What is a key change in FRS 102?

A

Revaluation of investment properties are recorded in income statement

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3
Q

Why might the introduction of changes to investment property accounting in FRS 102 be problematic?

A

Can affect key profitability ratios (with the potential to breach loan covenants)

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4
Q

What does IFRS 16 relate to?

A

Lease accounting

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5
Q

What is the balance sheet also known as?

A

Statement of financial position

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6
Q

What does the balance sheet show?

A

Shows a company’s assets & liabilities at a given date, usually at the end of the financial year.

Assets = property, debtors and other 
Liabilities = borrowing, overdrafts, loans and creditors
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7
Q

What is the income statement also known as?

A

Profit and loss account

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8
Q

What does an income statement show?

A
  • Summary of the business’ income and expenditure to show net profit/loss for a specific period of time, usually prepared annually.
  • recorded on an accrual basis i.e revenues are recorded when they are earned.
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9
Q

What is a cashflow statement?

A
  • Merges balance sheet and income statement to show actual receipts and expenditure including VAT
  • Not included in annual accounts but is prepared for management purposes.
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10
Q

What is an asset?

A

Resources containing economic value for future benefit.

eg. cash, property, debtors and other investments

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11
Q

What is a liability?

A

A debt owed by a company that requires an entity to give up an economic benefit.

eg. borrowing, overdrafts, loans and creditors

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12
Q

Why are audited accounts beneficial?

A
  1. Confirms no material misstatements
  2. Identifies weaknesses
  3. Facilitates access to finance
  4. Better supplier terms
  5. Required if business sold
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13
Q

What is the acid test (quick ratio)?

A

How well are current liabilities covered by cash/liquid assets

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14
Q

What is return on capital employed?

A

How profitable is capital invested in business

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15
Q

What is working capital ratio (liquidity)?

A

Ability of company to pay (solvency) / how quickly can assets be turned into cash to pay short-term obligations

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16
Q

What is gearing ratio?

A

Exposure of business to loans as opposed to share capital

17
Q

What is net assets per share?

A

Essentially the price which shares can be bought and sold at

18
Q

Which type of entity must use IFRS?

A

Listed companies

19
Q

What does a set of public limited company accounts include?

A
  • chairman’s statement
  • independent auditor’s report
  • income statement (profit & loss account)
  • statement of financial position (balance sheet)
  • corporate governance report
  • remuneration report
  • other statutory information
20
Q

What are management accounts?

A

Prepared for internal use by the business and are not audited.

21
Q

What does IFRS 16 require companies to do?

A

Full cost of the lease has to be accounted for on the balance sheet as occupiers obligations to pay rent will have to be recognised as a liability.

22
Q

Is service charge counted as a liability under IFRS 16?

A

No service charge payments are accounted for separately

23
Q

What leases are exempt from IFRS 16?

A

Leases for 12 months or shorter.

24
Q

What is a covenant strength?

A

The ability of a tenant to meet the covenants of a lease. includes rents, service charge, repairing and insuring obligations and stat obligations.

25
Q

What is a D&B rating?

A

An indicator that assesses the credit worthiness of a company based on the financial strength of the business, payment behaviour, age of the company, company size and other important factors.

26
Q

What is the risk indicator score produced by D&B based on?

A
  • outstanding charges or slow payment experiences reported
  • tangible net worth of the parent company
  • pre taxed profits over total assets ratio
  • values, ratios and trends from the balance sheet
27
Q

What are the two components comprising the D&B rating?

A

1) Financial strength - tangible net worth/credit capacity

2) Risk indicator - chance of business failure

28
Q

What is the difference between GAAP and IFRS?

A

GAAP is rules based and IFRS is principle based.

29
Q

What is a cashflow statement split into?

A

Investing activities and financing activities

30
Q

Under which Act may audited accounts be required?

A

Companies Act 2006

APC - Commercial Real Estate (20 decks)

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