Chapter 9, 11 & 12: Stock, Partnership Accounts & Regulatory Framework

Question 1

Stock

Under FRS 102, What is Stock Referred to as?

Answer 1

Inventories.

The Term is Also Used Under International Accounting Standards.

Question 2

Stock

Stock Should be Valued at The Lower of:

Answer 2

• Cost; or
• Estimated Selling Price - Costs to Complete & Sell (Net Realisable Value)

Due to The Qualititative Characteristic of Prudence.

Question 3

Stock

How is Sales Income Described For Service Businesses?

Answer 3

Sales Income Builds up Over The Life of a Service Contract.

(Rather Than When Work is Completed or the Client is Invoiced)

Question 4

Stock

If Revenue is Earned in > 1 Accounting Period, How is it Recognised in The Accounts if it Can’t be Reliably Measured?

Answer 4

To The Extent That Expenses Are Recognised & Recoverable From The Customer.

Question 5

Partnership Accounts

What is The Difference Between Partnerships & LLPs?

Answer 5

LLPs are Subject to More Regulation in The Way Their Accounts Are Presented.

Question 6

Partnership Accounts

A Partner’s Capital Account Shows:

Answer 6

• The Original Capital Introduced; and
• Any Subsequent Capital Introduced

Fixed Capital is The Amount A Partner Cannot Withdraw Until They Leave The Partnership.

Question 7

Partnership Accounts

A Partner’s Current Account Shows:

Answer 7

A Partner’s Share of The Profits Less Drawings.

A Partner’s Share of The Profit Comes From The Appropriation Statement.

Question 8

Partnership Accounts

How is Profit Allocated to Each Partner?

Answer 8

• Dr P&L a/c
• Cr Partners’ Current Account

(For Every Accounting Period)

Question 9

Partnership Accounts

How Are Drawings by Partners Accounted For?

Answer 9

• Dr Partners’ Current Account
• Cr Bank

Question 10

Partnership Accounts

Is a Partnership Taxable?

Answer 10

Footnote

No.

The Individual Partners Are Taxed on Their Share of The Profit.

Question 11

Partnership Accounts

A Partner’s Salary & Interest on Capital is Taxed as?

Answer 11

Trading Income.

(Not as Employment Income Nor Savings Income).

Question 12

Regulatory Framework

Financial Statements Are Governed by:

Answer 12

• The Companies Act 2006; and
• Accounting Standards.

Detail Not Required For Exam.

Question 13

Regulatory Framework

CA 2006 Requires Companies to Prepare Documents Annually, Which Consist of?

Answer 13

• Financial Statements; and
• Additional Information in The Notes of The Accounts (Disclosures)

Question 14

The Companies Act 2006

CA 2006 Requires Documents to be Prepared For:

Answer 14

• Shareholders; and
• Filing With The Registrar of Companies (Companies House).

Question 15

Regulatory Framework

Under CA 2006, What Must The Documents Show?

Answer 15

• A True & Fair View of The Companies Affairs; and
• The Profit or Loss For The Period

Question 16

Regulatory Framework

What Does (UK) GAAP Stand For?

Answer 16

Generally Accepted Accounting Principles.

‘UK GAAP’ is Mandatory For All Companies.

Question 17

Regulatory Framework

When is An Asset Recognised in The Accounts?

Answer 17

The Flow of Economic Benefit is Virtually Certain.

Question 18

Regulatory Framework

An Entity is a Going Concern Unless?

Answer 18

Management Intend to:
* Liquidate The Entity; or
* Cease Trading.

Within 12 Months From The Date The Accounts Are Authorised.

Not Usually The Same Date as The Balance Sheet.

Question 19

Regulatory Framework

What Are The Size Thresholds For Micro Entities?

Answer 19

• Turnover > £632,000
• Total Assets > £316,000
• Average Number of Employees > 10

Must Meet 2 of The 3 Criteria.

Question 20

Regulatory Framework

FRS 105 May be Adopted by Micro Entities, Offering?

Answer 20

Major (But Optional) Accounting Simplifications.

Many of The Normal Accounting Policy Choices Are Removed.