Accounting Principles & Procedures

Question 1

What is a public limited company?

Answer 1

• Company where shares are sold to the public on the stock market.
• Shareholders are part of the business and have a say on how it operates
• Improves its ability to raise capital
• Company registered under the Companies Act 1980

Question 2

What is a sole trader?

Answer 2

• Business owned and run by 1 person
• Have unlimited liability and the owner is responsible personally for the debts of the business

Question 3

What is a partnership?

Answer 3

• Where owners all share responsibility for a business
• Can be a LLP meaning partners have limited liabilities

Question 4

What is a private limited company?

Answer 4

• Has limited liability
• Owners are known as shareholders
• Can purchase shares in the company

Question 5

What are the contents of a public limited company’s accounts?

Answer 5

• Chairman’s statement
• Independent Auditor’s report
• Income statement (profit and loss)
• Balance sheet
• Corporate governance report
• Remuneration report

Question 6

What is the difference between management and statutory accounts?

Answer 6

• Management accounts – prepared for internal use, not audited
• Statutory accounts – audited by a chartered accountant

Question 7

What are consolidated accounts?

Answer 7

• Individual subsidiary accounts for a company within a single set of accounts

Question 8

What is a balance sheet?

Answer 8

• Statement of the financial position of a business
• Shows assets and liabilities
• Assets – cash, property, investments, etc
• Liabilities – debt, loans, creditors

Question 9

Where might property be featured in accounts?

Answer 9

• Balance sheet
• Listed as an asset

Question 10

What is a profit and loss account?

Answer 10

• Summary of business’ income and expenditure
• Prepared on an annual basis

Question 11

What is a cash flow statement?

Answer 11

Shows all the actual receipts and expenditure to include VAT

Question 12

What are the implications of IFRS 16?

Answer 12

• The full cost of leases must be accounted for on a balance sheet
• Liability to pay rent must be listed as a liability

Question 13

What is a Creditsafe report and what is contained in it?

Answer 13

A credit report summarising the key financials and ownership of the company.

• Summary of the company (registered address, SIC code, nature of the business, etc)
• Creditsafe score
• Financial information (turnover, profit & loss, balance sheet, cash flow)
• Directors
• CCJS

Question 14

What would you do if you didn’t have a Creditsafe report?

Answer 14

• Request the last 3 years of audited accounts OR
• Check the company accounts on Companies House
• Check for press
• Request landlord references including rent payment history
• Request bank references
• Improve surety by obtaining a rent deposit or guarantor

Question 15

What is the profits test?

Answer 15

Net profit must be 3 x the annual rent for 3 consecutive years (must request audited accounts)

Question 16

What is the net asset test?

Answer 16

Net assets must be 5 x the annual rent for 3 consecutive years

Question 17

What is the UK GAAP?

Answer 17

• UK Generally Accepted Accounting Principles
• Clients will adopt GAAP or IFRS

Question 18

Why assess covenant strength?

Answer 18

To assess the financial standing of a tenant and their risk of default. Can impact the value of an investment and yield

Question 19

To what extend can you advise your client on covenant strength?

Answer 19

• Can only advise how the covenant would be viewed by investors in the market
• Always suggest the client seeks further expert advice from qualified accountant

Question 20

What’s the difference between GAAP and IFRS?

Answer 20

• GAP has more rules
• IFRS is international and is a framework.