Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

IMC Unit 2 > Chapter Four > Flashcards

Chapter Four Flashcards

1
Q

Definition of small company

A

Defined as companies meeting two of the following three:
1. less than 50 employees
2. turnover less than 10.2m
3. assets less than 5.1m

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a close company?

A

One which is under the control of five or fewer people or under the control of its directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is a loan repayment shown as?

A

A reduction in assets and a reduction in liabilities, having no impact on the income statement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How is a capital expense defined?

A

It is ‘capitalised’ and shown on the balance sheet, such as the purchase of property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Can the share premium account reserve be used to pay a dividend?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is a permitted use of a share premium account reserve?

A

Write-off of expense incurred in rights issue of shares

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Non-current assets + working capital equals?

A

Non-current assets + current assets = current liabilities + non-current liabilities + shareholders’ funds

Working capital = current assets - current liabilities

Non-current assets + current assets - current liabilities = non-current liabilities + shareholders’ funds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What do non-current liabilities include?

A

Long-term loans and provisions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Would a revaluation of non-current assets directly affect reserves?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Which accounting concept gives rise to the inclusion of depreciation in accounting statements?

A

Accruals

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the accruals/matching concept?

A

It states that costs should be allocated to the periods where revenues are generated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What does depreciation involve?

A

Allocating the costs of a non-current asset over its useful economic life

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Shareholders funds in the accounting equation?

A

Share capital + reserves

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

If a company makes a provision for the first time against the estimated amount of doubtful debts, this will?

A

Reduce reported profits for the year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is authorised share capital?

A

The share capital that the company is allowed to issues. Since some of it may have been retained for future issues, it may not all be shown on the balance sheet

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

A business may make a profit during a period but have less cash in the bank at the end of the period. Why could this be?

A

Receivables are taking longer to pay than previously

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are post-balance sheet events?

A

Events which occur between the balance sheet date and the date on which the directors approve the accounts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

How can post balance sheet events be classified?

A

Either as adjusting or non-adjusting depending on whether the events are based on an existing conidition at the balance sheet date or a new event since the statement date

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Where would accruals and deferred income be found?

A

Current liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are arruals?

A

They are liabilities owed for services used during the chargeable accounting period, but not yet paid for eg gas bill which is outstanding

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is true about inventory?

A

It is a current asset and is the least liquid of current assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are legal requirements for a large company’s annual accounts?

A
  1. True and fair
  2. Comply with the companies act 2006
  3. Responsibility of the directors
  4. They must be audited
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

The effect on a company’s accounts of borrowing money would be to?

A

Increase assets and liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

A purchase of a non-current asset on credit will have what effect on a company’s account?

A

No effect of net assets; no effect on shareholderer’s funds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

If a company increases the value of an asset over its inital cost on the balance sheet, the surplus will be shown as part of?

A

Revaluation reserve. The revaluation reserve will be increased by the same amount, increasing shareholders’ funds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is treated as cash in a company’s cash flow statement?

A
  1. Cash from a bank overdraft
  2. Foreign currency overdrafts
  3. Foreign currency bank balances with 24 hours’ notice
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Where are prepayments found?

A

Current assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What are prepayments?

A

They occur if a company has paid for a service, but not yet had the benefit during the accounting period. The service owed to the company is shown at the year-end as a current asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Is an increase in inventory good cash flow perspective?

A

It suggests the company is spending cash on increasing this asset and so this is bad from a cash flow point of view

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Is a decrease in accounts receivable good cash flow perspective?

A

Yes, as the company is receiving cash from those debtors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Is an increase in accounts payable good cash flow perspective?

A

Then the company is not paying those creditors as quickly as they maybe should be which is good

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Is depreciation being charged on assets good from a cash flow perspective?

A

Yes, from a cash flow perspective it is good as the company is not actually spending any money on depreciation, it is an accounting entry only

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Why would the purchase of a new computer not qualify as a revenue expense?

A

The purchase of computer equipment is regarded as capital expenditure and is capitalised on the balance sheet.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Net book value of non-current assets assuming the cost model is applied?

A

Non-current assets(original cost) minus accumulated depreciation at year end

34
Q

Are guarantees/warranties and an outstanding litigation case shown in the accounts?

A

No as they are both examples of contingent liabilities and not shown in the accounts

35
Q

Why is bad debt included in the accounts?

A

Bad debt provisions represent an amount likely to be written off by the company and is included in the accounts

36
Q

Why may a company repurchase shares?

A

Pay back surplus cash back to shareholders and increase share price

37
Q

Current ratio

A

Current assets/current liabilities

38
Q

Working capital formula

A

Net current assets, i.e. current assets - current liabilities

39
Q

How is a significant influence accounted for?

A

Associate

40
Q

How is control accounted for?

A

Subsidiary

41
Q

What do high stock levels result in?

A

High current assets and therefore a higher current ratio

42
Q

How can a firm increase its interest cover ratio?

A

Interest cover is EBIT/interest expense. This ratio can be increased by either increasing EBIT or decreasing interest expense. If the company reduce their non-current liabilities, there would be less interest so lower interest cover.

43
Q

What is interest cover?

A

Interest cover is EBIT/interest expense

44
Q

Define the quick ratio (acid test)

A

Receivables, cash and deposits divided by payables and short-term borrowings

45
Q

How does a company include another company in its balance sheet when it controls 75%?

A

The balance sheet will record the group’s share of the net assets of the subsidiary company. This is carried out by recording 100% of the subsidiary assets and then making a deduction to reflect a minority interests

46
Q

What is gearing?

A

The ratio of debt to equity

47
Q

A company with a low gearing ratio will?

A

Have a high level of equity or a low level of debt

48
Q

What is capital employed?

A

Shareholder funds plus long-term liabilities. It does not include current liabilities

49
Q

What is true about preference shareholders?

A

They have preference on capital repayment on liquidation and on receipt of dividends. This is generally cumulative in that preference dividend arrears must be paid before any ordinary dividends

50
Q

Types of preference shares

A
  1. Participating share
  2. Redeemable
  3. Convertible
51
Q

What type of share is A-share?

A

Ordinary

52
Q

Do ordirnary shareholders share votes and dividends?

A

Yes they do

53
Q

Do MTFs reduce trading costs?

A

Yes they are expected to

54
Q

What is true about stamp duty and SDRT?

A

Stamp duty is payable on certified purchases and SDRT is payable on electronic dematerialised transfers of shares

55
Q

What are preference share dividends classed as?

A

Franked investment income

56
Q

What is true about convertible preference shares?

A

A fixed preference dividend is paid now, but the investor has the opportunity to convert those preference shares into ordinary equity shares in the future

57
Q

Do preference shares experience an increase in value as the company grows?

A

No, so would be unlikely to deliver capital gain, whereas capital gains would be a possibility with ordinary equity shares

58
Q

Is there a risk that preference shares make a capital loss

A

Yesm if the company goes into liquidation

59
Q

Criteria of a medium-sized company?

A

Must meet 2 out of 3:
1. Turnover less than 36m
2. Balance sheet less than 18m
3. Average no. of employees less than 250

60
Q

How are pension scheme assets measured?

A

They are measured at market value, whilst liabilities are calculated using the projected unit method

61
Q

What is the projected unit method?

A

Discounts back the liabilities using an AA rated corporate bond

62
Q

What is classified as an available-for-sale financial asset?

A

An investment in shares that has a quoted price, and that is not held for trading

63
Q

How are derivatives classified and recorded?

A

They are classified as financial assets and liabilities and they should be recorded in the balance sheet at fair value

64
Q

How should gains and losses be recorded for a derivative?

A

If they are freestanding, they should be recorded in the profit and loss account. If they are being used as a risk management tool to hedge another assett then they are reported in other comprehensive income

65
Q

How are preference shares reported?

A

Normally they are reported in equity with the dividend reported in the Statement of Change in Equity

66
Q

How is a redeemable preference share shown?

A

The nominal value to be repaid is shown as a liability and the dividend reported as an interest expense

67
Q

How are preference shares normally reported?

A

They are normally reported in equity with the dividend reported in the Statement of Change in Equity

68
Q

How are redeemable preference shares reported?

A

The nominal value to be repaid is shown as a liability and the dividend is reported as an interest expense (profit and loss)

69
Q

When will firms offering defined benefit schemes show pension plan assets on their balance sheet?

A

If the plan assets are greater than the PV of the liabilities

70
Q

If the PV of the liabilities is higher than the value of plan assets what do firms report?

A

They will report a liability

71
Q

Who does not report any asset or liability?

A

Firms offering defined contribution schemes do not report any asset or liability

72
Q

How are contributions paid to a DC scheme reported?

A

In the firm’s profit and loss account

73
Q

How are dividends paid reported?

A

In the Statement of Change to Equity

74
Q

How are actuarial gains/losses reported?

A

In Other Comprehensive Income

75
Q

How are gains/losses and changes in the fund assets reported?

A

In other comprehensive income

76
Q

How are gains/losses in the value of hedging instrumens reported?

A

In other comprehensive income

77
Q

How do firms offering DB pensins report?

A

As an expense the service cost and net interest

78
Q

What should be added to the trading profit figure to arrive at the correct cash flow figure?

A

An increase in inventory will reduce cash, so this is deducted. A decrease in trade receivables gives rise to an increase in cash so we add any decrease in receivables. An increase in payables arises as cash has been retained, so we add any increase in payables. Depreciation does not directly result in a cash flow and should be added back to the trading profit.

79
Q

What is a financial asset?

A

Any asset that is either cash, or an equity instrument of another entity. A financial asset can also be a contractual right to receive cash or another financial asset from another entity, or exchange financial assets or financial liabilities with another entity under conditions that are potentiall favourable to the entity

80
Q

What is a financial liability?

A

Any liability that is a contractual obligation to deliver cash or another financial asset to another entity, or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity

81
Q

What is included in the statement of changes in equity?

A
  1. The issue of new share capital
  2. The amount of net income retained during the year
  3. Any movement in the reserve for changes in foreign exchange gains and losses
82
Q

What is not included in the statement of changes in equity?

A

The purchase of property, plant, and equipment is not included, however the amount by which property, plant, and equipment is valued up or down is included

IMC Unit 2 (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions