Accounting Principles & Procedures

Question 1

If you wanted to check the covenant strength of a proposed tenant, what would you do?

Answer 1

Credit Check

Question 2

What does a credit check actually tell us?

Answer 2

Risk of business failure
Opinion based on the review of a company

Question 3

If you wanted more detail and analysis what would you do?

Answer 3

Ask for copies of audited accounts

Question 4

What would you look for in audited accounts?

Answer 4

Income statement
balance sheet
- Profits test

Question 5

What does a balance sheet tell us?

Answer 5

Assets
liabilities
owners equity
Statement of financial position - likelihood a firm will be trading the following year

Question 6

Give me an example of a fixed asset

Answer 6

Machinery
Real Estate

Question 7

Give me an example of a liability

Answer 7

Wages
taxes owed
Money owed to suppliers
Bank debt

Question 8

What is the impact of IFRS 16 on a balance sheet

Answer 8

Leases / rent now being identified as an asset / liability
- Negative impact on gearing ratios
- i.e increase in net debt

Question 9

What are the main headings / calculations in a profit and loss account?

Answer 9

Turnover minus cost of running business = gross profit
Gross profit less tax = net profit

Question 10

What tax is associated with companies?

Answer 10

Corporation tax

Question 11

What is the profits test?

Answer 11

3x net profit exceeds annual rent, rates and service charge