Additional Questions Flashcards
Why does an entity give their financial statements in 2 different currencies?
Companies translate financial statements into multiple currencies other than their functional currency. The functional currency is the main currency that the company use to conduct its business and report their financial statements and most importantly the primary economy the company operates. The presentation currency is the currency in which the financial statements of a company are presented in and most likely a foreign currency for the company.
The company can choose the have financial in two currencies because of consolidation purposes when different foreign operations need to be consolidated within one currency. The company is a subsidiary of a foreign parent company and therefore the entity needs to provide financial statements and reports to its parent. Be most companies do it to attract global investors. This practice facilitates a broader investor base, especially in regions with diverse languages, and aligns with the globalized nature of financial markets. Providing information in widely used languages improves competitiveness, increases analyst coverage, and signals a commitment to openness. Ultimately, translating financial statements is a strategic move to appeal to a diverse range of investors and foster trust in the global business environment.
Difference between the impact a discount rate can have.
A higher discount rate makes future cash less valuable, leading to cautious investments, lower bond prices, and less viable projects. Conversely, a lower discount rate makes future cash more valuable, encouraging investments and making projects more attractive. The discount rate also affects borrowing costs and influences financing decisions as a proxy for the cost of capital. In stock valuation, a higher discount rate lowers stock prices, while a lower discount rate raises them. Overall, the discount rate impacts how we value, invest, and finance in various financial contexts.
A company has a shareholding of 50% but they still fully consolidate, elaborate etc.
The consolidation of financial statements integrates and combines all of the company’s financial accounting functions to create statements that show combined results. If a parent company has 50% or more ownership in another company, that other company is considered a subsidiary and should be included in the consolidated financial statement.
Financial statements of an entity with multiple divisions or subsidiaries. This also applies if the parent company has less than 50% ownership but still has a controlling interest in that company. This is often chosen because of tax or other advantages that may arise.
What are the steps in revenue?
The basics:
* Step 1. Identify the Contract(s) with a Customer
* Step 2. Identify the Performance Obligations in the Contract
* Step 3. Determine the Transaction Price
* Step 4. Allocate the Transaction Prices to the Separate Performance
Obligations in the Contract
* Step 5. Recognize Revenue when (or as) the Entity Satisfies a
Performance Obligation
What is PPA?
Business combination: ‘a transaction or other event in which an acquirer
obtains control of one or more businesses’
.
* Step for accounting business combination:
1) Identify the acquirer
2) Determine the acquisition date (easy or not that easy)
3) Determine the purchase price (easy or not that easy)
4) Recognize and measuring the identifiable assets acquired and
liabilities assumed (remember intangible assets)
5) Account for goodwill (remember is the left over)
What are 5 temporary differences?
IAS 12 discusses five temporary differences:
Goodwill: No deferred tax is triggered; IAS 12 exempts it.
Initial Recognition of an Asset or Liability: Deferred tax isn’t recognized.
Revaluations: Deferred tax is acknowledged when assets are revalued, creating a temporary difference in certain tax jurisdictions.
Business Combinations: Deferred tax liabilities arise from revalued assets in business combinations.
Investments in Subsidiaries, Branches, Associates, and Joint Ventures: Changes in investment carrying amounts create temporary differences, requiring deferred tax unless the parent controls timing and it’s unlikely to reverse soon. IAS 12 emphasizes consistent deferred tax recognition, considering control and probability in assessing temporary differences.
Why is a gross profit margin important?
The gross profit margin shows how much money a company keeps after covering the costs of making its products. A higher margin means better profits and efficiency, making the company more appealing to investors.
why is debt to equity important?
The debt-to-equity ratio is important for evaluating a company’s financial health, risk level, and leverage. It helps investors assess a company’s risk profile, enables comparisons with industry peers, and informs strategic decisions about capital structure. Lenders also use it to evaluate borrowing capacity and set favorable terms.
explain in words what the effect would be on the value of Property, plant and equipment using your accounting principles when company a uses different useful life than company b on the exactly same products
If Company A and Company B use different estimates for how long their assets last, it affects how much they say those assets are worth. Company A, with a shorter estimate, shows lower values over time, while Company B, with a longer estimate, shows higher values. These differences can influence how people see the companies’ profits and overall financial health. It’s important for anyone looking at their financial reports to understand and consider these variations.
