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CH2 Format of Financial Statements Flashcards

1
Q

Which IAS relates to presentation of financial statements?

A

IAS 1 (revised)

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2
Q

What are the four main components of the financial statements?
What are the two extra ones?

A
  1. Statement of financial position (balance sheet)
  2. Statement of profit or loss (SoFA)
  3. Statement of changes in equity
  4. Statement of cash flows
  5. Notes
  6. Other financial and operating information
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3
Q

What are the eight IAS 1 principles?

A
  1. Fair presentation (true and fair view)
  2. Going concern
  3. Accruals basis
  4. Consistency of preparation
  5. Materiality and aggregation (each material class of items should be presented separately in the F/S e.g. as Revenue, Trade Recs, etc.)
  6. Offsetting (assets and liabilities cannot be offset against each other unless required/permitted by an IFRS e.g. cash/overdraft)
  7. Comparative information
  8. Disclosure of accounting policies
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4
Q

What are dividends payable on redeemable preference shares classified as?

A

Finance charge

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5
Q

What are dividends on ordinary and irredeemable preference shares treated as?
Reduction to what?
Shown where?

A

Appropriations of profit
Reduction to REs
In the statement of changes in equity

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6
Q

Where are irredeemable preference shares shown on the BS?

A

Under equity

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7
Q

Where are redeemable preference shares shown on the BS?

A

Under non-current liabilities

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8
Q

What is the double entry for payment of ordinary dividend?

A

DR REs
CR Cash

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9
Q

What is the double entry for payment OR DECLARATION IN THE ACCOUNTING PERIOD of dividend on irredeemable preference shares?

A

DR REs
CR Cash/dividends payable (current liability)

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10
Q

What is the double entry for payment OR DECLARATION of interim or final dividend on redeemable preference shares?

A

DR Finance costs
CR Cash/other payables (current liability)

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11
Q

In terms of SPL, what does the single statement include?

A

SPL and other comprehensive income

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12
Q

What is other comprehensive income?

A

Income/losses that don’t impact our profits and therefore our REs for the year. E.g. revaluation gain.

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13
Q

How are expenses classified in the single statement format of the SPL?

A

By function - aggregated by what function in the business the relate to.

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14
Q

What is the difference between the single statement SPL and the two statement format?

A

In the two statement format, you go down to profit for the year and then stop and add an extra title (SPL and other comp income). Then you write out the profit figure again and add the other comp income to give total comp income.

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15
Q

How are the expenses categorised in the two statement format?

A

By nature

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16
Q

Exceptional items are material items of income/expense that are so unusual that they warrant separate disclosure. What might they include?

A
  1. Write downs of inventories or property, plant or equipment (e.g. damaged asset)
  2. Disposals of property, plant and equipment or investments
  3. Restructuring or discontinued operations
  4. Litigation settlements
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17
Q

What are the three categories of a cash flow statement?

A

Operating activities
Investing activities
Financing activities

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18
Q

Statement of cash flows: indirect method: what are the three headings under OPERATING activities?

A

Cash generated from/(used in) operations
Deduct:
Interest paid and
Income taxes paid

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19
Q

Statement of cash flows: indirect method: what are the four headings under INVESTING activities?

A

Purchase of PPE
Proceeds from sale of PPE
Interest received (investment in debt)
Interest received (investment in shares)

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20
Q

Statement of cash flows: indirect method: what are the three headings under FINANCING activities?

A

Proceeds from issue of share capital
Proceeds from issue of long term borrowings/(repayments)
(Dividends paid)

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21
Q

Statement of cash flows: indirect method: RECONCILIATION: what figure do you start with?

A

Profit/loss BEFORE tax

22
Q

Statement of cash flows: indirect method:
RECONCILIATION:

What do you add back and deduct straight after the profit/loss BEFORE tax figure?
Why?

A

Add finance cost
Deduct investment income
Because they are non operations costs

23
Q

Statement of cash flows: indirect method:
RECONCILIATION:

Profit/loss before tax
Add finance cost
Deduct investment income
Next three?
Why?

A

Add back depreciation charge
Add back amortisation charge
Add/deduct loss/profit on PPE sales
They are non cash items

24
Q

Statement of cash flows: indirect method:
RECONCILIATION:

Profit/loss before tax
Add finance cost
Deduct investment income

Add back depreciation charge
Add back amortisation charge
Add/deduct loss/(profit)
Next?
Why?

A

Add/deduct:
(Inc)/decr in inventories
(Inc)/decr in trade and other receivables
(Inc)/decr in prepayments
Inc/(decr) in trade and other payables
Inc/(decr) in accruals
Inc/(decr) in provisions
They are movements on working capital and other assets/liabilities

25
Statement of cash flows: indirect method: CFs from OPERATING activities. What comes after 'cash generated from operations' (which is the figure you get from your reconciliation)?
Deduct: Interest paid and Income taxes paid
26
Reconciliation summary for SCF?
Profit/loss before tax Add finance cost Deduct (investment income) Add back depreciation charge Add back amortisation charge Add/deduct loss/(profit) Add/deduct: (Inc)/decr in inventories (Inc)/decr in trade and other receivables (Inc)/decr in prepayments Inc/(decr) in trade and other payables Inc/(decr) in accruals Inc/(decr) in provisions Deduct: Interest paid and Income taxes paid
27
Cash flows from INVESTING activities: add or deduct according to what?
Just deduct outflows and add inflows.
28
What are the four categories for INVESTING activities in a statement of cash flows?
(Purchase of PPE) Proceeds from sale of PPE Interest received (from investment in debt) Interest received (from investment in shares)
29
What are the categories for FINANCING activities in a statement of cash flows?
Proceeds from issue of share capital Proceeds from issue of issue of long term borrowings/(repayments) (Dividends paid)
30
What are the last three headings on the statement of cash flows?
Net increase/decrease in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year
31
What are the steps for setting up a statement of cash flows question?
If using indirect method (likely): 1. Use proforma given in exam and reconciliation. Set up T-accounts. 2. Work through the SFP (BS) taking each line to the T-accounts, reconciliation or face of the proforma 3. Work through the key figures on the SPL, again taking them to the T-accounts, reconciliation or face of the proforma 4. Deal with the additional information 5. Complete the T-accounts and take the balancing cash figures to the statement of cash flows
32
What are the main headings for the statement of cash flows? Summary
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 20X7 CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations Interest paid Tax paid CASH FLOWS FROM INVESTING ACTIVITIES Purchase of PPE Proceeds from sale of PPE Maybe interest or dividends received CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of share capital Change in long term loans Dividends paid DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT START OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR
33
What headings will always be in the statement of cash flows reconciliation (i.e. what non-cash adjustments do we need to make)?
1. Profit before tax 2. Depreciation/amortisation charges 3. Loss on sale of tangible non-current assets 4. Interest expense (reverse out accrued) 5. Change in inventories 6. Change in receivables 7. Change in payables 8. Cash generated from operations
34
Statement of cash flows: BS: where do you always take your non-current asset lines e.g. cost and depreciation?
To T-account workings (e.g. to cost account and accumulated depreciation)
35
Statement of cash flows: BS: where do you always take the movement in inventory?
Straight to your reconciliation
36
Statement of cash flows: BS: where do you always take the movement in trade receivables
Straight to your reconciliation
37
Statement of cash flows: BS: where do you always take the bank figure? What do you need to remember?
Straight to the face of your proforma at the bottom. Open up a bracket for each figure in case there is an overdraft.
38
Statement of cash flows: BS: what do you always do with share capital and share premium and where do you always take it?
Lock them together for each year and work out the combined movement. Take straight to the face of your proforma under financing activities (money received from issuing shares)
39
Statement of cash flows: BS: where do you always take the retained earnings figures? What are you looking to find from this information?
To a T account Any dividends paid
40
Statement of cash flows: BS: where do you always take the movement in long term loans?
Straight to the face of your proforma under financing activities
41
Statement of cash flows: BS: where do you always take the movement in trade payables?
Straight to the face of your reconciliation
42
Statement of cash flows: BS: where do you always take the tax figures?
To a tax T-account
43
Statement of cash flows: SPL: what figure do you take first and where do you put it?
Profit BEFORE tax Take to the top of your reconciliation
44
Statement of cash flows: SPL: after you have put the profit before tax figure into your reconciliation, what do you do next?
Glance back up the SPL and see if you can find any non cash items that you need to revers out.
45
Statement of cash flows: SPL: Once you have put the profit before tax figure into your reconciliation, what non cash figures might be above it that need to be reversed out in your reconciliation?
Depreciation Loss/profit on disposal Finance charge expense (accrued amount)
46
Statement of cash flows: SPL: Once you have put the profit before tax figure into your reconciliation and put in the other non cash figures that need to be reversed out, where else do those figures need to go? Depreciation Loss/profit on disposal Finance charge expense (accrued amount)
To your T-accounts Depreciation - goes to acc. dep. Loss/profit on disposal - probably leave until step 4 (dealing with the notes) Finance charge expense (accrued amount) - in the example, there was no outstanding accrual on the BS (i.e. we didn't owe any interest at the start or end of the year) therefore the amount in the SPL is the amount we actually paid and it goes directly below the 'cash from operations' under operating activities (heading 'interest paid')
47
Statement of cash flows: SPL: Once you have put the profit before tax figure into your reconciliation and put in the other non cash figures that need to be reversed out and then also put those figures in the relevant T-accounts, what do you do next?
Put the following into T-accounts: Income tax expense (Tax T-account) Profit for the year - PAT - (REs T-account)
48
Having completed steps 1-3 (set up proforma/reconciliation/T-accounts; dealt with BS; dealt with SPL), what do you do next? What might you have to do?
Deal with any notes. 1. Balance off retained earnings and put the dividends paid figure under financing activities 2. Money paid out for purchase of PPE. Do two things: A. genuine cash figure (money out) - put directly into proforma under investing activities (may be a balancing figure from your NCA T-account). In this example, you add the purchase price paid to the NCA Cost T-account. B. Balance off NCA Cost T-account, balancing figure is a disposal. Balance off the acc. dep. T-account, balancing figure is the disposal acc. dep. You now know that you disposed of assets that cost 54 and had acc. dep. of 24, therefore you can work out that the carrying value was 30. We know that we added back a loss on disposal in our reconciliation, therefore our genuine cash proceeds would be 12. Proceeds needs to go to investing activities .
49
Having completed steps 1-3 (set up proforma/reconciliation/T-accounts; dealt with BS; dealt with SPL) and also dealt with the notes, what do you do next?
Balance off you tax T-account and take the balancing figure (tax paid) to the proforma under operating activities.
50
Having completed steps 1-3 (set up proforma/reconciliation/T-accounts; dealt with BS; dealt with SPL), dealt with the tax, what do you do next?
Total your reconciliation to give cash generated from operations and put that figure in at the top of your proforma
51
What are the main headings for the SPL/SoFA?
Statement of Profit or Loss for the Year Ended Revenue Cost of sales GROSS PROFIT Various expense categories OPERATING PROFIT Finance Cost Investment income PROFIT BEFORE TAX Income tax expense PROFIT FOR THE YEAR
52
What are the main headings for the SFP/BS?
Statement of Financial Position as at ASSETS Non current Current EQUITY & LIABILITY EQUITY Ordinary share capital Retained earnings LIABILITY Non current Current

Prof FAR (16 decks)

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