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MCS - E2 > F2 > Flashcards

F2 Flashcards

1
Q

methods of issuing shares (3)

A

IPO
a placing
A rights issue

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2
Q

When can the WACC be used as a discount rate for NPV calculations?

A

`- capital structure is constant
no diff business risk with new investnment
new investment is marginal to the company

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3
Q

what is a financial asset

A
  • contractual right to receive cash or another financial asset
  • contractual right to exchange financial instruments with another entity under conditions that are potentially favourable

if you acquire = equity financial asset

eg investments in shares of another company

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4
Q

what is a financial liability

A

contractual obligation to:

  • deliver cash or another financial asset to another entity
  • to exchange financial instruments with another entity under conditions that are potentially unfavourable

eg trade payables, loans from banks

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5
Q

what is an equity instrument

A

any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities
eg issue of ordinary shares

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6
Q

initial measurement of a financial liability

A

@ FV for intital measurement (minus attributable costs of FL)

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7
Q

subsequent measurement of a financial liability

A

@ amortised costs

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8
Q

types of derivatives

A

foward - oblig to buy or sell a defined amount of specific underlying asset, at a specified price at a specified future date

future contracts - oblig to buy or sell a standard quantity of a specific underlying item at a specified future date

options - the right but not the obligation to buy or sell a specific underlyng asset at a specified price on or before a specified future date

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9
Q

EPS ratio

A

earnings / no of shares

earnings = groups profit after tax less profit of NCI and irredeemable pref share dividend

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10
Q

bonus vs rights issue shares

A

bonus - no additional income but more shares.

rights additional income to business and more shares issued

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11
Q

impact of a rights issue

A

two parts.

  1. new shares issued at a discount, but are treated as being issued at full market price. get the weighted average number of shares depending on when the issue was
  2. deal with the free element (discount). effectively we are diluting the shares in issue by giving those shares away for free. we deal with this by restating last years comparative EPS.

a rights issue with for sure reduce the EPS.

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12
Q

how to know if a lease is a finance lease

A
  • if there is an option to buy at the end of the lease. below FV
  • if ownership passes at the end of the lease term
  • if the term of the lease represents the majority part of the assets economic life
  • PV of the min lease payments represents substantiallu all the assests FV
  • lessee bears losses arising from cancelling the lease
  • assets are speciailized nature
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13
Q

who records the ‘rights to use’ of a lease

A

the lessee, not the lessor

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14
Q

how to accoutn for a finance lease

A
  1. derecognise asset and record a receivable
    2, record finance lease receipts as a reduction in the receiveable
  2. record int income on the receivable
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15
Q

IFRS Leases - requirement for accounting

A

that a lease be accounted for on the basis of their economic substance rather than their legal form. a lessee will not own the asset , but will control it for the duration of the lease
IFRS 16 requires that the PV of the future lease payments be calculated at the start f the lease and for the PV to be capitalised s an asset and a liability. the asset will appear under PPE and the liability will be split betwen current and non current liabilities depening on whethers its due in the next 12 months

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16
Q

revenue from customers - the 5 steps (COPAR)

A
  1. ID the contrract
  2. id the separte obligations
  3. determine the transaction price
    • Variable consideration (bonus pd on delivery)
      - significant financial components
      - non cash consuderations (sahres)
      - consideration payment to a customer (rebates)
  4. allocate the transaction price to performance obligations
  5. recognise revenue on each performance oblig is satiisfied (at a point in time, over time)
    - consignment inventory (legally owned by one party, held by another, can sell and return etc)
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17
Q

IAS 37 provisions etc - reason for this rule?

A

companies would use this to deflate revenue in good uyears and increase in bad years previously

provisions were often recognised as as result of an intent to make an expenditure , rather than an obligation to.

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18
Q

IAS 37 - contingent liability - recognised when?

A
  • an entity has a present obligation , as a result of a past event, an outflow of resources is probably needed to settle the oblig (50%) and a reliable estimate of amount can be made.
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19
Q

IAS 37 - provisions etc - what is a contructive obligation

A

established pattern of past practice (retail returns)

policy, not legal but their own.

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20
Q

IAS 37 - what cant you provision for ?

A

future operating losses - doesnt meet the liability as it a future things not based on a past event

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21
Q

IAS 37 - when to put in a contingent liability

A
  • less certain than an obligation
  • not probable outflow
  • diffciult to estimate reliabilty

account for this: not recognised / discloed in a note

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22
Q

IAS 37 - recognition / disclosure etc - when?

A

a/c treament / liab / asset

certain / regcog / recogn
probable / provsion / discloure note
possible / disclosure / no disclosure
remote / no disclosure / no disclosure

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23
Q

contingent liability definition

A

a possible obligation that arises from past events and whose existence will be confirmed only by the occurance or non occurence of one or more uncertain future events not wholly within control of the entity

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24
Q

intangible assests that cannot be capitalised (internally generated)

A 
goodwill 
brands
published titles
newpapers masts
customer lists
intellectual property
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25
Q

purchased intangible assets

A

should be recognised at cost plus any attributable csots of preparing the assets for its intended use

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26
Q

subsequent treatment of an intangible asset

A 
cost model (cost less amort & any impairement - finite life) or should not be amort if infinite life - only impaired annually
or 
revalution model (only if there is an active market)

amortization should start from the date the asset is available for use- not just when the company starts using it.

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27
Q

IAS 38 - R&D - what to do and when

A

research - to expenses when incured

when is it dev?
when the criteria is met - SECTOR
- Sell/use
 -intend to complete 
- reliable measurement of cost
- commerically/technically feasibe 
- adequate resources
- probable future benefits

is criteria met then capitalise, if not continue to put to expenses.

28
Q

IAS 21

A

Effects of change on foreign exchange rates

29
Q

functional currency

A

of the primary economic environment in which the entity operates

  • mainly influences sales price
  • country that mainly influences labour, material & other costs of providing goods and services
30
Q

presentation currency

A

in which the entity presents its financial statements

31
Q

ias 21 forex - initial recognition

A

recorded by applying a spot rate (rate on the date of the transaction)

32
Q

ias 21 forex - subsequent treatment

A

depends if monetary or non monetary.
monetary - @spot rate
non monetary - @leave at historic rate

33
Q

integrated reporting - main purpose

A

to explain to the providers of finance how an entity creates value over time

34
Q

integrated thinking

A

the active consideration by an organisation of the relationships between its various operating and functional units and the capitals that the organisation uses or affects.

35
Q

objectives of an integrated report

A
  • to improve the quality of info available to providers of financial capital to enable a more efficient and prodcutie allocatino of capital
  • to provide a more choesive and efficient approach to corporate reporting that draws on different reporting strands and commicates the full range of actors that materially affect the ability of an organisation to create value over time
  • to support integrated thinking decision making and actions that focus on the creation of value over the short medium and long term
  • to enhance accountability and stewardship for the broad base of capitals (financial, manufactured intellectual, human social and relationship and natural) and promote udnerstandin of their interdependencies
36
Q

integrated reporting - the capitals

A 
financial - debt,equity etc
manufactured - buildings, equip
intellectual - patents, copyright, 
human - training, people, experience
social & relationship - bewteeen communities, brand, reputation
natural - water, land, air, minerals
37
Q

pros and cons - integrated reporting

A

more informed user
increase user understanding via more discloures
improved stakeholder reputation via more transparency
can lead to imrpvoed efficiences

cons
bias, as not audited
reluctance to disclose, fear of losing competitive advantage
might be too much info for one user to digest

38
Q

liquidity ratios

A
  • current ratio
  • quick/acid test ratio
  • inventory days
  • receivable days
  • payable days
39
Q

accounting policies that can affect ratios

A

revaluation vs cost model for valuation of assets
- FIFO vs AVCO inventory valudation
fiancnial assets - gains/losses can go to PnL or OCI
one off non recurring iteims (acq/disposal of sub)

40
Q

limitations of financial reporting

A 
historic data
non financials ignored 
filed 3 months after date (non relevant)
detail lacking 
a/c policies / standards per jurisidcation
41
Q

investor ratios

A

dividend cover
interest cover
price earning ratio

42
Q

solvency / gearing ratios

A

gearing (debt / equity)

43
Q

over trading

A

entity growing too fast without adequate long or short term fiannce. may enf up unable to pay suppliers as debt falls due.

44
Q

ROCE

A

operting profit / capital employed

cap employed = equity and NIC and int bearing borrowings - non CA

45
Q

related parties - def

A

if control, joint control, common control or significant infuclent exists between the party and reporting entity

including:

key mgmt personnel
close family members of key mgt personnel (kids, spouse

46
Q

related parties - not when:

A 
providers of finance (banks)
key customers or suppliers
two joint ventures
same director in common
gove dept / trade untion or public utilities
47
Q

influence

A

power to participate

48
Q

control

A

power to direct

49
Q

Forex- IAS?

A

21

50
Q

IAS 21 Forex - translating P&Lusing which rate

A

avg rate

51
Q

IAS 21 Forex - translating SFP using which rate

A

assets and liab - closing rate (at reporting date)

goodwill - closing rate

52
Q

attribution of exchange diff (IAS 21 Forex)

A

on goodwill - all to parent if NCI is measured using % of NA or between parent & NCI is FV method
on net assets - split between parent and NCI depending on their holding %

53
Q

definition of parent / sub relationship

A

50% holding of voting rights

54
Q

Acquisition accounting for a parent / sub

A
  • assets, liab, inc & expe added
  • goodwill recognised
  • share capital if the parents only
  • intra group balances are eliminated
  • uniform a/c policies are used
    NIC are presented in equity
55
Q

types of consideration of buying a sub

A

cash
share issue
deffered consideration
contingent consideration

56
Q

goodwill calculation (sub)

A 
FV of Ps invest in S 
Value of NCI (FV or % of NA) @ acq
less: sub'a NAs @acq
= Goodwill
- Impairment
= Goodwill @reporting date
57
Q

NCI calculation (sub)

A

Value of NCI @ acq
+ NCI% of post acq reservces
- NCI% of impairment (FV only)

58
Q

consolidated reserves calculation (sub)

A

parents reserves
PUP adj (if parent is seller) whoever has the profit
- impairment
- P% of post acq reserves

59
Q

investment in associate

A

the power to participate in the fianncial and operating policy decisions of the investee but not he control or joint control over policy

>20% and/or
-represented on the board
- partcipates in policy making
material transactions between them 
interchange of managerial staff
60
Q

accounting for investment in associate?

A

equity method

one liner within non current assets called investment in assocate.

61
Q

joint arrangement

A

an arrangement of which two or more parties have control

62
Q

joint venture

A

whereby the parties that have joint control of the arragement have rights to the net assets of the arragement

accounted for - equity method

63
Q

joint operation

A

whereby parties that have joint control if the arrangement have rights to the net assets and obligations to the liabilities

not a separate entity

64
Q

diff between joint venture and subsidiary

A

A single business may establish a subsidiary company that it fully or partially controls, whereas a joint venture is formed by an agreement between two or more entities for a specific business purpose. Neither company owns a joint venture wholly

65
Q

classifications of cash flow x 3

A

cash flow from op act - entities principal revenue earning activities (direct & indirect)
cash flow from invest act - acq and disposal of long term assets
cash flow from financing act - that change the size and composition of the entities equity and borrowings

MCS - E2 (3 decks)

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