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CIMA > F2 Flash Cards > Flashcards

F2 Flash Cards

1
Q

Cost of Equity formula (no growth)

A

Ke = dividend / Ex. div share market price

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2
Q

Primary & secondary functions of capital markets

A

primary: to enable companies to raise new finance through issuing shares / marketable debt

Secondary: to enable trade of shares

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3
Q

Cost of Equity formula (with growth)

A

Ke =
(current Divi (1+ g) / ex. div share market price) + g

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4
Q

Calculating growth if not given

A

if given divi now and divi x years ago

(nth root of D0/Dn) -1

If based on retention of profits
G = % return required X proportion of funds retained

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5
Q

Cost of Debt formula (bank borrowings)

A

Kd = annual % int rate (1 - corporate tax rate)

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6
Q

Cost of Debt formula (Irrdeemable, undated, long dated or redeemable traded at par)

A

Kd = coupon rate (1-tax rate)
———————————–
after int. paid market price of debt

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7
Q

IRR formula (redeemable debt)

A

R1 + (R2- R1) x NPV1 / (NPV1 - NPV2)

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8
Q

Yield to maturity (irredeemable debt)

A

Annual int. received / market value

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9
Q

Yield to maturity (redeemable debt)

A

IRR

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10
Q

Financial Liabilities - Initial recognition

A

Fair value LESS transaction costs

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11
Q

Financial Liabilities - Subsequent Treatment

A

FVPL , reval to fair value, gain/loss to P&L

OR

Amortised cost
(net proceeds + int. - repayment = closing bal)

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12
Q

Convertible Loan (split liability & equity parts)

A
  1. cash from loan
  2. PV of cash flows = liability
  3. difference = equity
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13
Q

Financial Assets - Initial Recognition

A

Fair value PLUS transaction costs

OR

FVPL - transaction costs go to P&L

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14
Q

Financial Assets - Subsequent Treatment IF EQUITY

A

if shares held for trading: FVPL, reval to fair value, gain/loss to P&L

If shares NOT held for trading: FVOCI, reval to fair value, gain/loss to OCI

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15
Q

Financial Assets - Subsequent Treatment IF DEBT

A

If intend to hold to maturity:
Amortised cost

If intend to hold & then sell
FVOCI

If intend to sell
FVPL

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16
Q

Liability provisions 3 criteria:

A
  1. present obligation from past event
  2. outflow of resources probable
  3. reliable estimate can be made

(DO NOT provide for: training, future losses)
(provide for: lower of cost of fulfilling contract or cost of breaching contract, future costs of restoration capitalized with asset, redundancies)

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17
Q

Contingent liabilities & assets (disclosed in dates to the accounts if…)

A

contingent liability - disclose of possible
contingent asset - disclose of probable

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18
Q

Intangible asset definition…

A

identifiable, non monetary asset without physical substance

(must be seperable, or arise from legal/contractual rights)

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19
Q

Research & development costs

A

Research costs - write off to P&L
Development costs - capitalise & amortise IF meet PIRATE criteria

Probable future economic benefit
Intention to complete
Resources to complete
Ability to use/sell product
Technically feasible
Expenditure measured reliably

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20
Q

Internally generation ITAs

A

Internally generated e.g. brand names -> not recognised

ITA purchased separately e.g. aquire a licence -> capitalised at cost

ITA purchased with business acquisition -> capitalise at fair value if ITA can be measured

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21
Q

Earnings per share (EPS)

A

Earnings (PAT - NCI share of profits - irredeemable pref share divis)
______________________________________________________
WAV shares

FOR WAV SCALE UP SHARE ISSUES BEFORE BONUS/RIGHTS ISSUES
Bonus issue - bonus fraction =
shares after / shares before

Rights issue - bonus fraction =
Cum rights price / TERP

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22
Q

DEPS

A

Convertible loans:
earnings - save interest, pay more tax
WAV - no. shares increase by max. conversion

Share options:
earnings - no impact
WAV - no. shares increase by bonus element…..

bonus element = diff between no. options in existence and no. full price shares can be purchased with cash from options

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23
Q

Indicators of a finance lease

A
  • legal title transferred
  • option to purchase
  • lease term majority of economic life
  • PV of lease payments = FV of asset
  • highly specialised asset
  • lessee bears losses from cancelling lease
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24
Q

Finance leases, lessor initial recognition:

A
  1. derecognise asset
  2. record a receivable (PV of unreceived payments)
  3. difference is gain/loss on disposal
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25
Q

Finance leases, lessor subsequent treatment:

A

In arrears:
Opening bal, +int., - lease receipt, closing bal

In adavnce:
Opening bal, - lease receipt, sub total, +int., closing bal

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26
Q

Operating leases, lessor accounting:

A

lease income recognised in P&L over the lease term

Dr cash
CR P&L
Cr/Dr deferred income/accrued income

27
Q

Construction contracts recognising revenue….IF LOSS MAKING

A

revenue X
Cost of sales (X) (B)
_________________________
Gross loss ( X )

28
Q

Construction contracts recognising revenue if progress unknown

A

Revenue = recoverable costs if progress unknown, no profit can be recognised

29
Q

Related parties

A

key management & close family
entities in same group (parent, subsidiaries, joint ventures)

( not related: common director, joint venturers, finance providers, customers/suppliers)

30
Q

Integrated reporting primary purpose

A

Explain to providers of financial capital how an entity created value over time in a way that’s beneficial to all stakeholders

31
Q

Integrated reporting objectives (4)

A
  1. improve quality of info
  2. cohesive & efficient approach to corporate reporting
  3. enhance accountability & stewardship for the capitals
  4. support integrated thinking & creation of value
32
Q

The 6 capitals

A

Financial
Manufactured
Intellectual
Human
Social/relationship
Natural

33
Q

4 pros & 3 cons of integrated reporting

A

Pros
+ forward looking info
+ more info disclosed
+ increased transparency = improved reputation
+ improved efficiencies

Cons
- reports not audited - bias
- disclosure of info could = loss of competitive adv
- too much info for users to digest

34
Q

Foreign currency transactions: initial & subsequent measurement

A

initial measurement = record at historic rate

Subsequent measurement =
If settled - translate at settlement date
If not settled - translate at closing rate

UNLESS non -monetary asset (e.g. machinery), then keep at historic rate

35
Q

3 steps to account for deferred tax

A
  1. calc the temporary difference
    CA > TB = DT liability
    CA < TB = DT asset
  2. calc DT balances at year end
    Temp difference x tax rate = year end DT liab/asset
  3. Post the MOVEMENT in the DT balance

NOTE: DT assets can only recorded up to the amount you expect to be able to use

NOTE2: DT entry should match treatment of transactions that caused it e.g. cap allowances to P/L, revaluations to OCI

36
Q

W3 Goodwill calc

A

Cost of investment
NCI @ acquisition
LESS S NAs @ acquisition

37
Q

W4 NCI calc

A

NCI @ acqusition
NCI% S post acq NA movement

LESS impairment (only NCI % if fair value used for NCI @ acq)

38
Q

W5 Retained earnings calc

A

100% P
P% S post acq movement

LESS impairment (full impairment if proportionate method used and only P% if fair value method used for NCI @ acq)

39
Q

PUP adjustments

A

Cr inventory, Dr retained earnings (increase COS)

If P sold to S -> all P adj in W5 RE
If S sold to P -> split P% in W5 RE calc and NCI% in W4 NCI calc

40
Q

intra-group outstanding balances: if balances AGREE

A

cancel out immediately
Dr payables
Cr receivables

41
Q

intra-group outstanding balances: if balances DO NOT AGREE

A

due to cash in transit:
Treat cash as received at YE
Dr cash, Cr receivables
cancel out intra group balances
Dr payables, Cr receivables

due to inventory in transit:
treat inventory as received at YE
Dr inventory Cr receivables
cancel out intra group balances
Dr payables, Cr receivables

42
Q

consideration for cost of investment. Fair values for:
cash
deferred cash
shares
deferred shares
contingent consideration

A

cash = cash paid
deferred cash = PV
shares = market value @ acq
deferred shares = market value @ acq
contingent consideration = fair value

43
Q

Indications of significant influence (2)

A
  1. appoint board members
  2. lots of trading between parent & associate
44
Q

Investment in Associate =

A

Cost of investment
P% A post acq movement
Less: impairment
Less: PUP

45
Q

Share of associates profit =

A

P% of A total profit after tac
Less: Impairment
Less: PUP

46
Q

Consolidated Reserves at Reporting Date =

A

100% P
P% S post acq
p% A post acq
LESS: Goodwill impairment
LESS: impairment of A investment
LESS: PUP adj

47
Q

Joint ventures are

A

2 companies create new company
rights to net assets
(use equity accounting the same as for associates)

48
Q

Joint operations are

A

Jointly controlled projects (no separate entity exists)
rights to assets & obligations

49
Q

Associate accounting rules

A

parent has significant influence, not control (<50% shares/voting rights)
No control = no addition of assets & liab or income & expenses

DO NOT eliminate trading between assoc & group companies
DO remove dividends received from associate

50
Q

Dividends paid to NCI =

A

NCI bal b/f
NCI share of profit/OCI

Dividend paid BALANCING FIGURE
____________________________________
NCI bal c/f

51
Q

Dividends received from associates =

A

Inv in assoc b/f
Assoc share profit/OCI

Dividend received BALANCING FIGURE
_________________________________________
Inv in assoc bal c/f

52
Q

Calculating FX difference on translation of goodwill

A

Goodwill @ Acq @ HR
LESS Impairment @ AR
Exch difference BALANCING FIGURE —> if FV split P&NCI, if prop all P
____________________________________
Goodwill @ reporting date @ CR

53
Q

Exchange difference on Subs net assets

A

Closing NAs @ CR
LESS opening NAs @ OR
LESS comp income @ AR
___________________________________
FX diff on S net assets ——> split P & NCI

54
Q

Gross profit margin =

Movements caused by….

A

Gross profit (rev - cos)
____________________________
revenue

movements caused by:
sales & cost price changes
sales mix changes
inv valuation policy changes

55
Q

Operating profit margin =

Movement caused by….

A

Operating profit (PBIT)
__________________________
Revenue

Movements caused by:
same as GP% if inline
changes to admin & distribution exps
exceptional PPE write off

56
Q

ROCE=

Movements caused by…..

A

Operating profit (PBIT)
_________________________
capital employed

Movements caused by:
OP% or asset turnover (ROCE = OP% x asset turnover)
Revaluations
PPE inv at YE with no time to generate profit
changes in leases

57
Q

Current ratio & Quick Ratio/Acid Test

A

Current = current assets / current liabilities

Quick = current assets - inventory / current liabilities

58
Q

Inventory days

A

Inventory / COS X365

59
Q

Receivable dats

A

Receivables / Revenue X365

60
Q

Payable days

A

Payables / COS X365

61
Q

Gearing =

A

Ratio= Debt / equity

% = debt / debt +equity

62
Q

Interest cover =

A

Operating profit (PBIT) / finance cost

63
Q

Dividend cover =

A

EPS / Dividend per share

OR

profit for year / dividend paid

CIMA (9 decks)

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