Exam Qs Flashcards
What are the two methods of accounting for government grants?
Deferred income method and ‘netting off method’
How does the netting off method work for government grants?
Say I wanted to build a Spooky factory for £1m and got a £300k government grant for it and the factory was estimated to be useful for 20 years?
The grant would be taken off the cost of the factory, so £700k would be the initial cost in the tangible assets.
Deprecation of £700k/20 = £35k in the first year would be charged.
What is a provision?
It is a liability of unknown amount and unknown timing.
It should be recognised if a present obligation from a past event which probably will cause outflow of economic assets and an amount can be reliably estimated for it.
How do you work out what way round to put assets and liabilities in a cash flow?
AIR
Assets increase, reduce
What do you start a cash flow with?
PAT
What is a cash flow all about?
The point of a cash flow is to work out from the P&L and balance statement to work out the net change in cash.
If this plus the cash at the start of the period = the cash at the end of the period then the cash flow statement works.
What is the structure of a statement of cash flows?
Profit before tax
add back all bits of P&L and SOFP that are not done in actual cash and aren’t from investing or financing activities - AIR
This arrives you at net cash from operating activities
Then add back cash used in investing activities - AIR
then add back cash used in financing activities
- AIR
This should give overall change in cash used in the business. Add this to year start cash to make sure this agrees with cash balance at end of period.
Cash flow done
what are the inherent limitations of financial statemenets
- prepared to specific date and therefore historic, backward looking and provides limited predictive value
- standardised manner of prep and much of the information is aggregated, so content is standardised and individual parts of aggregated information may be difficult to identify
- limited narrative information which can provide future insight, how it is operating, plans for future etc.
- estimates and jidgements used, different companies may use slightly different estimate techniques and judgements, therefore difficult to compare
- companies use different accounting policies so exact comparisons cannot always be made
What else goes in SPLOCI apart from P&L?
Revaluation gain
What is the difference between how you calculate the current and non current liabilities for leases whether they are paid in advance or in arrears?
If in advance then the current liability is the normal payment amount and the non current liability is the year end balance minus that payment.
If paid in arrears, you need to work out two years worth of lease liability year end balances and the difference between them is the current liability and the year 2 balance is the non current liability.
How should you handle a government grant that will need to maintain a level of jobs in 20m time? Ye is in 10m from the grant
Defer 10m income and put 10m in other income
What should you do with cash in transit in group consol?
Speed it through and pretend it has already been received
What are distributable profits measured as?
Accumulated realised profits - accumulated realised losses. This is normally the retained earnings of the company
Can you revalue a unique intangible?
NO as there is no active market
If a flood occurs post year end, is this an adjusting or non-adjusting event after the reporting period?
Non-adjusting - as this is NOT evidence of a condition which exists at year end.
If this event is material then a disclosure needs to be made in the FS
