Ch 2 - Format of FS Flashcards
What principles does FRS 102 require acc’s to follow when preparing FS?
Fair presentation
Going concern
What does FRS 102 Secition 3 require the fair presentation of?
Financial position
Financial performance
Cash flows
What does the CA2006 require FS’s to show?
True and fair view
When should a company’s FS be prepared on the GC basis?
When the company is expected to continue in operation for the foreseeable future
When assessing GC status, what does FRS 102 require?
- Management should look into future for 12+ months from reporting date
- Uncertainties regarding GC should be disclosed
- If the GC assumption isn’t followed, must disclose
- That the GC assumption isn’t followed
- The basis of the acc used
i. e. everything becomes at market value and all current assets as expect to liquidate in next 12 months
- Reasons why GC assumptions aren’t followed
What kind of treatments are only used when GC basis is applied?
- Recording fixed assets at cost and writing down over UEL
- Distinction between CA and NCA
if a company is not GC, how should FS be prepared?
On a breakup basis where
- Assets would be recorded at recoverable amount
i. e. value at which they can be sold - All assets/liabilities are classified as current
What is the accruals concept also known as and why?
- Matching concept
- Because it matches action with time rather than cash movement
How does the accruals concept require transactions and events to be recorded?
When they occur, rather than when the cash is received/paid for them
What is the effect of the accruals concept on the FS?
expenses are recognised in the P&L account on the basis of direct association between the costs incurred and the earning of the related income
What is the alternative basis to accruals basis?
Cash basis - where you account for transactions when the money is received
How is consistent presentation ensured?
The general rule is that
- Accounting policies (therefore presentation) are normally kept the same from year to year to allow comparability of FS
- If they do change, must state why and the impact on the comparable figures
How are the FS indiv lines broken down?
- Each material class of item must be shown separately in FS
- Therefore, large specialised companies can end up with odd lines - Immaterial items can be aggregated with other items
Is off-setting allowed for A&L?
FRS 102 doesn’t allow offsetting against one another unless permitted by another FRS
E.g. of exception- doubtful debts are netted off against receivables and then a note is given
Is off-setting allowed for I&E?
Only allowed to be offset by FRS 102 if
Another FRS allows/permits it
Gains/losses/expenses on similar items are immaterial
What is the general rules for comparatives?
FRS 102 requires comparative info to be given on
- All numerical information
- For narrative info if necessary for understanding
What are the 2 formats for P&L given by FRS 102?
Classification by function (most common) tested as a whole in exam
Classification by nature - may be asked to complete extracts or for an explanation
What are the basic headings for P&L classification by function?
Turnover CoS Gross prof Distribution Costs Admin costs (sub-total) Other income Operating profit profit from operations Interest payable Interest receivable Profit before tax Income tax expense Net profit for the period
What is the basic layout for P&L classification by nature?
Turnover Other income Changes in finished goods and WIP Raw materials and consumables used Employee benefits expense Depreciation and amortisation expense Other expenses Profit from operations Interest payable Profit before tax Income tax expense Net profit for the period
What is total comprehensive income?
Realised P/L for period, plus other comprehensive income
What is other comprehensive income? And what will this be in the exam?
Income and exp not recognised in P&L
Will only ever be revaluation reserve of PPE
What is the basic layout for SOCI?
XYZ Ltd
SOCI for year ended X
Profit for year (P&L)
Other comprehensive income
Gain on property revaluation
Total comprehensive income for the yearWhat choice does FR 102 Section 17 PPE allow for companies?
For them to hold PPE/ tangible fixed assets at either
- Historic cost (cost model)
- FV (revaluation model)
What are the steps to perform revaluation
- Increase cost to market value
DR Cost [FV - original cost]
Note: this doesn’t hit the P&L as there isn’t a realised gain - Remove all accumulated depreciation recognised to date
DR Accumulated depr - Create revaluation reserve which sits in equity in the BS
CR Reval reserve [Dif i.e. FV - carrying amount]
Amount credited to reval reserve is the diff between NBV and FV
As this is an unrealised gain, we will see this in ‘other comprehensive income’
Why are revaluation gains only shown in the ‘other comprehensive income’ section?
As it is an unrealised gain, and P&L only shows realised gains
If Phillips plc has a building which cost £1m and has a carrying amount of £700k int eh BS. The building is then revalued to £1.5m. profit for the year is £600k. Show the double entries to record the transaction and show SOCI
DR Cost £500k DR Accumulated depr £300k CR Revaluation reserve £800k Statement of comprehensive income £000 Profit for the year 600 Gain on revaluation 800 Total comprehensive income 1,400
What does the statement of changes in equity show?
It shows a summary of all movements in share capital and reserves during the year
Show the basic layout of a SOCIE
XYD Ltd SOCIE for the year ended X Along the top: - Share capital - Share premium - Revaluation surplus - P&L account - Total Down the side - Balance at X (start) - Total comprehensive income - Dividends - Issue of share capital - Balance at X end
What value is share capital?
Nominal value
What is the basic layout of the balance sheet?
Fixed assets - Tangible assets - Investments - Intangible assets Current assets - Stocks - Trade and other debtors - Cash and cash equivalents Creditors - amounts falling due within one year - Trades and other creditors - ST borrowings - Current tax creditor - Provisions Net current assets
Total assets less current liabilitie Creditors falling due after more than one year - Redeemable preference share capital - LT borrowings Net assets
Equity Capital and Reserves - Ordinary chare capital - Share premium account - Irredeemable preference share capital - P&L account reserve - Revaluation reserve Total equity
What is the difference for IFRS vs UK GAAP for balance sheets?
Called SFP in IFRS
And IFRS shows as assets = equity - liabilities
While UK GAAP shows it as assets- liabilities = equity
Give examples of intangible assets
- Licences
- Goodwill
- Brands purchased
- Patents
When should an asset be classified as current if it
Will be settled within 12 months of the reporting date
Is part of the entity’s normal operating cycle
When do you define a liability as being current?
When it is expected to be settled in the normal course of the enterprises operating cycle
It is held for primary trading purposes
Due to be settled within 12 months of the reporting date
What do ordinary share holders own?
A % of the share capital plus reserves in the company
What are attached to ordinary shares?
Voting rights
What don’t ordinary dividends create when they are proposed or declared?
A liability as the directors can revoke them before they are paid
When does a dividend become contractual obligation?
When it has been approved by the SH at the general meeting
When does a dividend become a contractual obligation generally?
At the year end
When are ordinary dividends accounted for? and what is the journal?
When they are paid
DR P&L Reserve
CR Cash
