Chapter 17 - Preparing basic financial statements

Question 1

What is the process for preparing financial statements?

Answer 1

1) Balance off and close the ledger accounts
2) prepare a TB
3) Year-end adjustments made and ledgers closed off
4) Updated TB used to prepare financial statements

Question 2

What are some common adjustments made at the year end? (7)

Answer 2

• closing inventory
• depreciation charges for the year
• accruals and prepayments
• irrecoverable debts and allowances for receivables
• income tax
• provisions and contingent liabilities, and
• events after the reporting period

Question 3

what does IAS 1 Presentation of Financial Statements require that the following components to be presented within the financial statements? (5)

Answer 3

• a statement of financial position
• a statement of P&L
• a statement of changes of equity
• disclosure notes to the financial statements
• statement of cash flows

Question 4

What is the equation for cost of sales?

Answer 4

Opening Inv + Purchases - Clo inv

Question 5

If the tax is in a credit balance?

Answer 5

Over provision

Question 6

If the tax is in a debit balance?

Answer 6

under provision

Question 7

Is redeemable debit or equity?

Answer 7

Debit

Question 8

Is iredeemable debit or equity?

Answer 8

Equity

Question 9

IAS 10 Events after the reporting period defines such events as what?

Answer 9

Those events, favorable and unfavorable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue

Question 10

What is the purpose of IAS 10?

Answer 10

to define to what extent events that occur after the reporting period should be recognised in the financial statements

Question 11

What happens if event after the reporting period provides evidence about conditions at reporting date?

Answer 11

adjust financial statements

Question 12

What happens if event after the reporting period does not provide evidence about conditions at reporting period?

Answer 12

• Impacts going concern -> adjust financial statements
• If no impact on going concerns then do not adjust financial statement . If material disclose effect

Question 13

What are some examples of adjusting events? (3)

Answer 13

• discovery of errors or fraud that occurred during the reporting period
• resolution of an insurance claim or court case that confirms an obligation at the reporting date
• major customers going onto liquidation

Question 14

What are some examples of non-adjusting events? (3)

Answer 14

• Fluctuations in tax/exchange rates
• Issue of shares
• Fire or flood after the reporting date

Question 15

IFRS 15 defines revenue as what?

Answer 15

income arising in the course of an entity’s ordinary activities

Question 16

What are the steps for identifying revenue? (COPAR)

Answer 16

1) Identify the Contract
2) Identify the separate performance Obligations (goods and services)
3) Determine the transaction Price
4) Allocate the transaction price to the performance obligations
5) Recognise revenue as or when a performance obligation is satisfied

Question 17

what are goods?

Answer 17

at a point in time

Question 18

what are services?

Answer 18

over a period of time

Question 19

Using the 5 step approach revenue will be recognised on what two bases?

Answer 19

Over a period of time - this is likely to apply for the provision of services when there is simultaneously provision and consumption of a service
at a point of time - this is likely to apply for the sale of goods when transfer of control can be determined at a specific point in time

Question 20

When is revenue recognised?

Answer 20

only before sales tax figure

Question 21

what is the equation for net figure?

Answer 21

Gross x (100/ (tax amount +100)