C5 - Accounting For Liabilities Flashcards

1
Q

IAS 12 - income taxes

Definition

A

Sets out the treatment for taxes on income such as corporation tax paid by UK companies based on profits.

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2
Q

IAS 12 - income taxes

When does most larger companies pay their tax?

A

Every 3 months when it’s due with some amounts due to be paid in the current accounting period and some due the following period.

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3
Q

IAS 12 - income taxes

What is current tax

A

The amount of income taxes payable in respect of the taxable profit for the year

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4
Q

IAS 12 - income taxes

How is underpaid tax recognised on BS

A

Current liability

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5
Q

IAS 12 - income taxes

How is overpaid tax recognises on BS

A

Excess is recorded as an asset

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6
Q

IAS 12 - income taxes

How to calculate profit for the year with estimated tax

A

Profit before tax - tax liability estimation = profit for the year

This is used in the equity on BS

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7
Q

IAS 37 - provisions, contingent liabilities and contingent assets

Definition

A

Represents uncertainties that may have an effect on future FS

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8
Q

IAS 37 - provisions, contingent liabilities and contingent assets

What is a provision

A

A liability of certain timing or amount

More than 50% chance of happening

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9
Q

IAS 37 - provisions, contingent liabilities and contingent assets

What is a liability

A

A present obligation as a result of past events where settlement is expected to result in an outflow of economic benefits

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10
Q

IAS 37 - provisions, contingent liabilities and contingent assets

Obligating event meaning

A

An event that creates a legal or constructive obligation resulting in an entity having no realistic alternative to settle the obligation.

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11
Q

IAS 37 - provisions, contingent liabilities and contingent assets

Legal obligation - provisions

A

Obtain something from a contract, legislation or other law

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12
Q

IAS 37 - provisions, contingent liabilities and contingent assets

Constructive obligation - provisions

A

An entities actions such as an established pattern of past practice

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13
Q

IAS 37 - provisions, contingent liabilities and contingent assets

Provision is to recognised as a liability on BS when..

A
  • present obligation as a result of past events
  • probable an outflow of benefits will be required to settle obligation
  • reliably measured
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14
Q

IAS 37 - provisions, contingent liabilities and contingent assets

Difference between provisions and liabilities

A
  • provisions have uncertainty as to the timing or amount to be paid
  • liabilities we are certain how much will be paid as we’ve had the goods, received invoices and know payment dates
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15
Q

IAS 37 - provisions, contingent liabilities and contingent assets

How provisions are recorded on FS

A

Change in provision is shown expense on P&L

Total provision is shown long term liability on BS

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16
Q

IAS 37 - provisions, contingent liabilities and contingent assets

What is a contingent liability

A

A potential liability that may occur depending on the outcome of an uncertain future event.

Less than 50% chance of it happening (possible only)

17
Q

IAS 37 - provisions, contingent liabilities and contingent assets

Contingent assets meaning

A

Disclosed only where an inflow of economic benefits is probable (more than 50%)

18
Q

IAS 37 - provisions, contingent liabilities and contingent assets

Should disclosure be made if the asset is possible or remote?

A

No!

19
Q

IAS 37 - provisions, contingent liabilities and contingent assets

Provisions check list

A
Probable / Present obligation - liability 
Company lose legal case 
Reliably measured 
How it’s recorded in FS 
Notes on FS
20
Q

IAS 37 - provisions, contingent liabilities and contingent assets

Contingent liabilities check list

A

Is it possible or remote obligation

Will not be recorded on FS

No transfer of economic benefits

21
Q

IAS 10 - events after the reporting period

Definition

A

Favourable and unfavourable events that take place after the financial statements have been prepared at the year end but before they are authorised and released to third parties

22
Q

IAS 10 - events after the reporting period

Once FS have been authorised and released to third parties, can FS be altered?

A

No too late

23
Q

IAS 10 - events after the reporting period

Two types of events

A

Adjusting events

Non adjusting events

24
Q

IAS 10 - events after the reporting period

Adjustment events meaning

A

This provides material evidence of conditions that existed at the end of the accounting period.

25
Q

IAS 10 - events after the reporting period

Examples of adjusting events

A
  • impairment of asset
  • inventories where NRV falls below cost
  • customer becomes insolvent
  • discovery of fraud or errors that are incorrect
  • court case settlement confirm present obligation existed at year end
26
Q

IAS 10 - events after the reporting period

Meaning of non adjusting events

A

Conditions that arose after the year end of the reporting period. No adjustments to be made in FS but disclosed in notes

27
Q

IAS 10 - events after the reporting period

Non adjusting event examples

A
  • discontinuing major part of business
  • major purchase of asset
  • fires, floods or strikes
  • changes in tax rates
  • major reconstruction
28
Q

IAS 10 - events after the reporting period

How are dividends recognised on FS after reporting period

A

Non adjusting event disclosed in notes and not treated as a liability

29
Q

IAS 18 - revenue

Definition

A

This treatment ensures that revenue shown in P or L is stated correctly.

30
Q

IAS 18 - revenue

Definition of revenue itself

A

The gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity.

31
Q

IAS 18 - revenue

How is revenue measured?

A

At fair value of the consideration received or receivable.

32
Q

IAS 18 - revenue

3 types of revenue

A
  1. Sale of goods
  2. Rendering of services
  3. Interest, royalties and dividends
33
Q

IAS 18 - revenue

Definition of sale of goods

A

Revenue from sale of goods is recognised when

seller has transferred risks and rewards to buyer

seller has no continuing involvement in goods

revenue can me measured

34
Q

IAS 18 - revenue

Rendering of services definition

A

Revenue is to be recognised by reference to the stage of completion.

Revenue can be measured reliably

Economic benefits will flow to seller

Stage of completion can be measured reliably

35
Q

IAS 18 - revenue

Interest, royalties and dividends

A

Interest - revenue is recognised using time basis to calculate interest

Royalties - revenue is recognised on an accruals basis according to agreement

Dividends - revenue is recognised when shareholders rights to receive payment is established