Chapter 14 - Company Accounts

Question 1

Regulatory

Answer 1

Auditors report:
If conditions not met will qualify report as ‘limitations of scope’ ‘Disagreement’

Question 2

Balance Sheet

Answer 2

Total Assets (current +non-current)=Capital and reserves (Total Equity) +Total liabilities

1. Assets

Current (A) and non-current (B)
(B)amortisation - erosion of value for intangible non-current assets e.g goodwill patents
(A) receivables/debtors - money owed to you

Question 3

Share capital/ premium and Reserves (Equity)

Answer 3

Share capital: nominal value of all shares in issues
Share premium: excess above nominal value raised on issue

1. Issues new shares:
   share cap increases, share premium increases (assuming issues at higher price than initial)
2. Bonus.script issue:
   share cap increases, share premium decreases (issuance funded by this account)
3. split: no change to capital or premium

Reserves: retained money from shareholders

Question 4

Liabilities

Answer 4

Accrual’s - expenses not yet invoiced (current liability)

contingent liabilities - don’t know what the expense amount will be yet e.g legal claims 0 displayed as a note on the accounts
Provisions: - we can make a reliable estimate of the amount of the obligation

Question 5

Depreciation/Amortisation

Answer 5

• Assets values at NBV=Cost -accumulated depreciation
• free hold land doesn’t depreciate

Method 1 - straight line:

Annual dep=(cost-resale value)/useful life
NBV=Cost-(annual dep x years)

Method 2- Reducing line:

Annual dep= (1-n)*square root (expected residual value /original cost)

NBV=cost(1-annual dep)>n

Amortisation reflects the wearing out of intangible non-current assets. The lower the amortisation charge, the higher the profits.

Question 6

Inventory

Answer 6

1. Weighted average: average of all inventory
2. First in first out: old inventory used first e.g perishable goods
3. Last in first out: new inventory used first - not permitted under IFRS

Question 7

2. Income/P+L

Answer 7

Gross profit=revenue - Cost of sales(direct costs)

Operating profit =revenue - direct and indirect costs Before interest and tax

Net income = revenue - direct and indirect costs - interest - tax

Question 8

3. Cash Flow Statement

Answer 8

1. operating activities : relating to what company actually does
2. Investing activities : company investing in others
3. Financing activities : others investing in company

Adjustments
To operating cost: add depreciation, increase in receivables (owed) decrease cash ,increase in payables (I owe) increase cash - haven’t paid yet, increase in inventory , decrease cash

Free cash flow: cash flow available for distribution to the owners of the firms
1. Enterprise cash flow: to the firm
2. Equity cash flow: to equity (once debt obligations have been satisfied)

Question 9

Group Accounts

Answer 9

Group=Parent+Subsidiaries (parent owns 50%+ )
Accounts needed for each member or group and one for whole group

Question 9

Group Accounts

Answer 9

Group=Parent+Subsidiaries (parent owns 50%+ )
Accounts needed for each member or group and one for whole group

Subsidiary companies are consolidated IN FULL (100%) and a minority interest is then deducted.

Minority interest - remaining percentage susidiary owns (less than 50%)

Answer 10

provisions on P+l??
profit before tax margin