Financial Accounting and Reporting Deck Flashcards
What items can you net off in a Financial Statement?
VAT, Immaterial items (e.g. foreign exchange), Government grants.
What is EPS?
Earnings per share (Profit after tax / Number of shares)
What is realised income?
Income you have or will receive very shortly.
What is the layout for Classification by function?
Revenue, cost of Sales. Gross profit, other income, distribution costs, admin expenses. Profit from operations, finance costs, investment income. Profit before tax, income tax exp.. Net profit for period.
What are the overheads in the financial statement?
Other income, Distribution costs, Admin expenses.
What is the layout for Classification by nature?
Revenue, other income, changes in goods and work in progress, raw material used, employee benefit exp, depreciation and amortisation exp, other exp. Profit from operations, finance costs. Profit before tax, tax exp. Profit after tax.
What is the cost model for revaluation?
Held on SFP at carrying value.
What is the revaluation model?
Held on SFP at fair current value.
You definitely have to do a revaluation when?
There’s a material difference between fair value and carrying value.
If you do revaluation which increases price over initial price what do you do?
Dr extra amount, Dr Acc Depp so far, Cr Revaluation reserve.
When does something from the Revaluation reserve go to retained earnings?
When is sold.
What is a treasury share?
When companies buy back their shares (i.e. may buy 1% of each share)
How are non-current assets listed?
In order of increasing liquidity.
Provisions are (current/non-current)
Always current unless specified
You can’t pay ordinary dividends until?
You’ve paid preference ones.
Someone is only “owed” a dividend?
When the cash is in their account, a company can decide to not pay any time.
How do you find the Profit Generated from Operations indirectly?
Profit before tax + finance cost + depreciation + loss on disposal + interest expense - increase in invent - increase in receive + increase in pay - decrease in provision - profits from associates - investment income
What are the three sections of a cashflow statement?
Cash flows from operating activities, cash flows from investing activities, cash flows from financing activities. Net increase, Cash and equiv at beginning, at end.
What are the sections of cash flows from operating activities?
Cash generated from operations, Interest paid, tax paid, net cash from operating activities.
What are the sections of cash flows from investing activities?
Proceeds from sale of equipment, purchase of PPE, Interest received, Purchase of investments, dividends received, net cash used in investing activities.
What are the sections of cash flows from financing activities?
Proceeds of issue of shares, repayment of loans, dividends paid.
In SPL SFP - Discounts allowed and Received go in?
Discounts allowed into admin expenses, discounts received into other operating income
In SPL and SFP, rental income goes?
Into other operating income.
In SPL and SFP, Plant and machinery depreciation can go in?
Cost of sales - not sure if this is common.
In SPL and SFP, Motor vehicle depreciation goes in?
Distribution costs.
In SPL and SFP, profit on disposal of non current assets can go in?
Distribution costs.
In SPL and SFP, Interest received goes in?
Investment income.
In SPL and SFP, money from insurance claim goes in ?
Trade and other receivables.
In SPL and SFP if a company has 10% debentures you must adjust the?
Finance cost as they are paying the debentures for interest and short/ long term/ interest bearing borrowings for the actual debenture.
In SPL and SFP, wages go into the?
Admin expenses
What is the time value of money?
Money changing value due to interest, risk, ability to invest now.
What is compounding?
Helps us to find terminal value of cashflow. How much it will be worth in future.
PPE will be recognised if?
It is probable that the economic values will flow to the entity and the cost of the item can be measured reliably.
Capital expenditure includes?
Price of capital item, delivery costs, non-refundable taxes, construction costs, testing, relevant borrowing costs, enhancing costs, future costs.
Revenue expenditure includes?
Repairs, renewals (i.e. road tax on vehicle), repainting, staff training, time allocated on machine.
Abnormal costs to PPE are recorded?
As expenditure in SPL as does not provide economic benefits (i.e. delays due to bad weather costs)
By-products from PPE are recorded?
Credited from cost of asset (i.e. selling misshapen biscuits from biscuit machine).
Income earned before asset acquired is?
Other income. I.e. if field is used as car park before car park installed it cannot be deducted from asset.
IAS16 refers to?
When you can capitalise expenditure?
IAS23 refers to?
Borrowing costs (interest) in construction of assets. Match costs of borrowing to benefits. Finance costs capitalised.
If an asset is incomplete at year end, it is classified as?
An asset under construction. (No depreciation)
When adding borrowing costs to PPE, deduct?
Any interest gained from surplus borrowing.
Capitalisation starts when?
Expenditure is incurred on asset, borrowing costs are incurred, activities undertaken to prepare asset for use (i.e. obtaining planning permission).
Capitalisation stops when?
all activities preparing asset for use are complete.
Stop capitalising borrowing costs as soon as?
The PPE has been completed/ constructed.
The depreciable amount is?
The cost of the asset less the residual value (value if sold at end of life now - no inflation).
Sum of Units is a form of depreciation where?
Depreciation is calculated as a ratio of the units produced.
Depreciation starts and ends when?
Starts when asset is available for use. Ends when fully depreciated.
The cost of safety inspection for an aircraft will be capitalised?
at acquisition as a directly attributable component of PPE and depreciated until the next inspection is due.
In the cost model?
Assets are carried at cost less accumulated depreciation.
In the revaluation model?
Assets are carried at their fair value less accumulated depreciation.
If revaluation policy is adopted?
It must be applied consistently to all assets in the class (land and buildings, motor vehicles, fixtures and fittings)
The journal process for a revaluation is?
Dr cost, to increase from cost to fair value, Dr Accumulated depreciation to remove it, Cr revaluation reserve to recognise the overall increase from carrying amount to revalued amount.
The revaluation reserve is part of?
Other comprehensive income. Sits as component of equity on SFP, deductions may be made due to impairment, transfer or disposal of revalued assets only.
Why might shareholders not want to approve a revaluation?
It will increase depreciation and reduce profits so less dividends.
IAS 16 permits that a transfer can be made from ?
The revaluation reserve (Dr) to the retained earnings (Cr) to offset the smaller profits due to revaluation. Shown in “Statement of changes in equity”. Only excess depreciation transferred.
Remember, don’t depreciate?
Land
In revaluation of whole group, to recognise decrease in value in SPL, if not previously revalued upwards?
Dr Accumulated depreciation built up so far, Dr SPL with Balancing Figure (carrying amount - fair value), Cr Cost to record decrease from cost to fair.
In revaluation of whole group, to recognise decrease in value in SPL, if previously revalued upwards?
Dr Revaluation reserve to return to normal, Dr Acc Dep, Dr Balancing Figure, Cr Cost to record decrease from cost to fair value.
Goodwill and intangible assets (impairment) should be tested.
Every year.
Non-current tangible assets should be tested for impairment when?
There are indicators (fall in market value, obsolescence or physical damage, indications economic performance ahs deteriorated like reduced period of manufacturing)
Impairment is when the..
Recoverable amount is less than the carrying amount.
The recoverable amount is ?
the higher of value in use, or fair value LESS costs to sell.
Value in use is?
Present value of future cashflows generated from item.
Cashflow projections should exclude?
the effects of future restructurings and should generally cover no longer than 5 years.
Treating for impairment loss in the cost model:
Loss charged in full to PL, DR PL, Cr Asset carrying amount or accumulated depreciation.
Treating for impairment loss in the revaluation model:
Loss charged first against revaluation reserve. Dr Rev res, Dr PL with balance, Cr Asset carrying amount or Cr Accumulated depreciation.
An NCA is held for sale if?
Its carrying amount will be recovered principally through a sale transaction rather than continued use.
Conditions for an asset to be held for sale are:
Must be immediately available for sale, Sale must be highly probable (committed management looking for buyer), sale expected within year, unlikely for change of plan.
Non-current assets held for sale on the SPL SFP are in?
The SFP under current assets, no depreciation charged from reclassification
If an item of PPE is to be reclassified as Held for sale, it must be recorded at?
The lower of its carrying amount and the fair value less costs to sell. (Value in use is nil, since no future cashflow from the asset)
On reclassification as an NCA held for sale?
an impairment review must be done. Carrying amount =
After disposal, any remaining amount in revaluation reserve?
Must be released to retained earnings: Dr Revaluation reserve, Cr retained earnings.
PPE disclosures contain:
Cost b/f, additions, revaluations, held for sale, disposals, cost c/f then acc dep b/f, revaluation, held for sale, disposals, charge for year, impairment, acc dep c/f. Then carrying amount b/f c/f
Disclosure that must be made relating to PPE classes are?
Measurement basis (cost or revaluation), depreciation methods, Useful lives, gross carrying amount, acc dep, reconciliation of net carrying amount, assets pledged as security, commitments to acquire, accounting estimate changes, revaluation details.
Voluntary disclosure relating to PPE include?
Carrying amount of temporary idle PPE, Gross carrying amount of fully depreciated PPE in use, carrying amount of retired PPE, fair value of PPE when different from carrying amount if using cost model.
Safety tests are capitalised for as long as?
They last for.
Interest on loans to build PPE can be capitalised?
Only during the building of the PPE.
What are enhancing qualitative characteristics of a financial statement?
Comparability, Understandability, Timeliness
If information is fairly presented it is?
Reliable, Comparable, Understandable and Relevant.
Where will the dividend charge for redeemable preference shares be shown?
As a finance cost in the SPL (as they are treated as a liability)
The matching process..
Is depreciation (matching income and spending on asset)
Examples of intangible assets?
Patents, copyrights, licenses, trademarks, brand names, franchises.
An asset is identifiable if?
It is capable of separate disposal or arises from contractual or other legal rights.
Internally generated goodwill does not fall within the IAS38 definition of ?
an intangible asset, cannot be disposed of individually.
Assets can be recognised if?
Probably to get economic benefits, cost of asset can be measured reliably/
Development should be capitalised if all of these are true:
Completion feasible, intention to use, can be sold, generate economic benefits, enough resources to complete, expenditure measurement reliable.
if asset will be held for sale and previously revalued up (so it is on the revaluation modeli)
1) Need to bring it to fair value first! Cr NCA Dr Revaluation.
2) Move it to held for sale: Cr NCA (OG- complete removal), Dr NCA held for sale (at FV-cost to sell), Cr Impairment -cost to sell
An active market is one where?
Items are homogeneous, buyers and sellers can be found at any time, prices are available to public.
An intangible asset can be revalued if the fair value can be?
determined by reference to an active market.
Internally generated good will and brand?
Cannot be capitalised. You can’t show Coca Cola goodwill to someone.
Amortisation for finite and indefinite intangibles?
If finite, amortise over useful life. Amortisation reflects pattern of use (ratios). If indefinite test for impairment annually.
To set up a provision the accounting entries are to?
Dr Expense (SPL) Cr Provision (SFP)
The two types of obligation an entity can have regarding provisions is?
Legal and constructive (i.e. their policy is to be environmental so constructive obligation to clean waste)
If a provision no longer meets the recognition criteria it should be derecognised with entries:
Dr Provision, Cr PL
When provision is incurred use the double entry:
Dr Provision, Cr Cash (difference between paid and provision recognised in SPL)
Provisions cannot include?
Gains or losses from future disposals or operations,
An onerous contract is one where?
Unavoidable costs exceed economic benefits. Provision can be recognised in SPL when lease becomes onerous. In subsequent periods, this provision is reduced by payments made.
Unavoidable costs are the lower of?
the cost of fulfilling the contract and any compensation or penalties from failure to fulfil
Restructuring is?
Programme that materially changes what the entity does or how it does it.
A provision for restructuring can only be made if?
detailed, approved plan exists and it is communicated to those affected. Provision should include direct expenditure and exclude costs of ongoing activities.
In a restructuring can a provision cover staff retraining?
No - this counts as ongoing activities of company.
Things that can be included in a provision for restructuring are?
Direct expenditure from restructuring and Unavoidable costs (lower of cost to fulfil contract and any compensation of penalties from failure to fulfil).
A provision for restructuring can’t include..
Costs associated with ongoing activities. If you get some money back (renting out unused building) you can subtract it.
When making a provision including future dismantling costs.
Work out current value of costs then Dr Total PPE cost (item and current provision) Cr Provision Cr Cash with value of item
In future years after a provision including dismantling?
Dr PL with PPE depreciation exp, Cr PPE acc depp same amount, Dr Finance costs with percentage increase of dismantling, Cr provision with same amount
If obligation to dismantle exists, should be capitalised in accordance with IAS
16 and 37?
A disclosure note for a class of provisions contains?
Opening and closing balance, movements during year, brief description of nature of obligation and timing of outflows, indication of uncertainties.
The layout of a provision disclosure lists?
The opening balance, what is used this year, the desired carried forward balance, then in-between there is a balance given to SPL.
If the probability of an obligation occurring is remote, possible, probable?
Remote -> Ignore, Possible -> disclose as contingent liability, probable -> provide provision assuming all conditions met.
For a contingent liability:
Disclose nature of contingency, estimate of financial effect, indication of uncertainties, possibility of reimbursement.
If the probability of an asset occurring is remote, possible, probable, virtually certain?
Remote or Possible -> Ignore, Probable -> disclose as contingent asset, virtually certain -> recognise asset.
A contingent asset is?
A probable asset from a past event. Disclose nature of asset and where practicable the financial effect.
The journal entry to recognise a virtually certain asset is:
Dr Receivable, Cr PL (other income)
If the company is virtually certain to be reimbursed from insurer for a probable settlement of claim?
Record both provision and associated asset. Asset and liability recorded separately, PL amounts may be netted off, asset amount can’t exceed provision.
Provision and contingent liabilities require the obligation to arise?
from past events.
The IAS that decides on provisions/ contingent liabilities or assets is?
IAS 37
In terms of a provision, if the board could reverse the decision and not announce it?
Not a provision, outside scope of IAS 37
When documenting notes for provisions lay out?
Financial statement extracts (assets (NCA, PPE), Liabilities (provisions)). Notes of Provisions, contingent liabilities, other (future events)
If there is no active market for an item then intangible assets (revaluation)?
Cannot be revalued
An operating lease is one where?
IAS 17 The risks and rewards don’t transfer to lessee. For example when you rent a flat, you have it for part of the time.
A finance lease is where?
IAS 17 The lessee deals with the expenses and rewards. E.g. renting a car for its full life.
PPE is dealt with in IAS
16
IAS 16 qualitative characteristics
Understandability, Relevance, Comparability, Faitful representation
If any of these is present it is a finance lease:
Ownership transferal at end, lessee can purchase it for bargain, lease term is majority useful life, lessee continue lease for below market rate, start of lease - present value of payments is similar to fair value, only the lessee can use it without major modification, if lessee cancels - must pay lessor for losses.
The type of lease a land will take is likely to be?
Operating as it has indefinite useful life.
Substance over form in Finance leases?
If you have a finance lease on a car, because of economic substance, risks and rewards, put it on your balance sheet even though it’s not yours.
The operating lease disclosures contain:
The accounting policy, payments charged as an expense in the year, amounts lessee committed to pay in future (non-cancellable).
To record the acquisition of an asset under a finance lease. Double Entry:
Dr Non Current Asset, Cr Finance lease liability.
On a finance lease the asset should be depreciated over?
shorter of total lease term and useful economic life. If ownership transfers at end always use UEL.
Record finance lease payments as (double entry)?
Dr Finance lease liability, Cr Cash
Record interest accruing on finance lease liability (double entry ) as?
Dr Finance Charge (SPL) Cr Finance lease liability
The actuarial method for interest expenses on finance lease is?
Finance charge calculated for the period as X% x balance of liability outstanding.
PVMLP stands for
present value of minimum lease payments
If you have to find the finance charge for a finance lease?
Total lease payments less amount “borrowed” (capitalised) (lower of FV and PVMLP)
For sum of digits method for a finance lease interest expenses?
Find the total finance charge. Think about the triangle. year one has the most interest.
If a finance lease has a deposit paid at a start, the double entry is?
Dr Finance lease liability, Cr Cash
For finance leases, depreciate at shorter of?
UEL and total lease term.
Splitting finance lease liability between current and non-current?
Non-current It is the outstanding charge from second year in table. Current is the balancing charge with carry forward from first year.
Exam technique: Leases Extract Qu?
SPL: Finance cost, Operating lease rental expense, depreciation. SFP: NCA-PPE, NCL-FLL, CL-FLL (Finance lease liability), Accruals, Prepayments
On a finance leaseback (sale then lease) you should… (profit and loss)
Recognise any loss immediately. Deferr any profit over the lease term (Def Income). the asset should still remain in SOFP
For leaseback on operating lease…
If carrying amount exceeds Fair value do impairment loss in SPL first.
B1102 For operating leaseback, what do you do with sales proceeds
Recognise profit immediately, recognise loss immediately if future lease rentals are at market rate, if they are below market rate defer loss over period of asset use.
B1102 For operating leaseback, if sale proceeds are over fair value of asset…
Take profit based on value immediately, excess profit is deferred over life of lease.
B1102 For operating leaseback if sales proceeds equals fair value…
Recognise profit immediately.
For Sale and operating leaseback…
Check for need to do impairment first then use B1102 of book.
To recognise revenue from services you need to be able to…
Measure it reliably, stage of completion at reporting can be measured reliably along with costs incurred, economic benefits probably flow to provider. If not revenue is restricted to recoverable costs incurred.
Dividends are recorded as assets when…
Shareholders right to receive payment is established.
How to divide variable and fixed costs among units produced…
Split variable costs between numbers produced. Split fixed costs between amount budgeted for. Extra to SPL.
The qualities of an auditor are…
Accountability, Integrity, Objectivity and Independence, Competence, Rigour, Judgement, Good communication, Association, Providing value.
Accounting policies should only really be changed if…
It is required by IFRS or it will result in more reliable financial statements.
The standard highlights two events where you can’t change accounting policy:
For a new type of transaction not dealt with previously. Or a new policy for a new immaterial transaction.
When we say accounting policies should be applied retrospectively we mean…
As if it had always been in force, Min of three statements (end of current period, end of previous period, beginning of earliest comparative period).
If it’s impractical to restate financial results retrospectively after a new accounting policy…
They should be applied prospectively, all events after the change should be recorded in this way.
A disclosure should be made when a voluntary change in accounting policy has a material effect, the disclosure states:
Nature of change, reasons for change, amount of adjustment for periods and line items, the fact that comparative information has been restated or it was impracticable.
Changes in accounting estimates are…
Adjustments to carrying amounts of assets or liabilities or amount of periodic consumption. (Estimates are like bad debt allowances, useful lives, adjustments for obsolescence.)
If there is a doubt over whether it is a change in policy or a change in estimate, IAS 8 requires that…
It is recognised as a change in policy.
A discontinued operation is…
A component of an operation that has been disposed of, or held for sale. (In this case it must represent a single line of business of geographical area, be part of a single coordinated disposal plan, or be part of a subsidiary acquired solely for resale)
A discontinued operation should be presented in the accounts as…
Nothing in the SFP, Post tax profit or loss for operation and disposal in SPL with detailed analysis (revenue, expenses, tax…), new cash flows shown regarding discontinued operations.
When putting discontinued operations in the SPL…
Put reorganisation costs after finance costs. Separate bit at end with “Loss for period from disc. Op”. Then Total loss…
IAS 21 is to…
produce rules an entity should follow in the translation of foreign currency activities.
The historic rate is…
The foreign transaction rate in place at the time of transaction
The closing rate is…
The foreign transaction rate at the reporting date.
Monetary/non-monetary assets /liabilities are…
Whether they convert easily to cash (receivables, payables, loans) or not (inventory, PPE).
The presentational currency is…
The currency financial statements are presented.
The functional currency is…
The currency of the primary economic environment.
For foreign transactions, the double entries are…
Dr purchases, Cr payables with historic cost. Then later on settlement, Dr Payables with same amount but Dr SPL with difference and Cr Cash total.
For unsettled foreign transactions…
If asset/liability is monetary, retranslate at closing rate (exchange differences to SPL and payables). If non-monetary, leave it at historic rate - or if FV model, Items retranslated when new FV is determined)
IAS 24 refers to…
Related party disclosures. Identify related parties, transactions, outstanding balances, when and what disclosures should be made,
The qualitative aspects of IAS 24 - related parties are…
Relevance, Predictive and confirmatory value, comparability.
A person may be related (symmetrical) to an entity if…
Close family tie, They have control over the reporting entity, have significant influence, or are a member of the key management personnel of the entity or its parent.
Two entities are related if…
Members of same group, joint ventures (inc. of same parent), post employment benefit plan, control by related person. (Not necessarily related if both control a joint venture)
In disclosures regarding related entities state…
Specific disclosures: Relationships, Name of parent, compensation paid. All disclosures: Nature or relationship, amounts involved, outstanding balances, expenses for irrecoverable debts.
Is an entity related if it has a director in common?
Not necessarily.
IAS 10 relates to…
accounting for events in the post year end period.
Adjusting events are…
Those that provide evidence of conditions that existed at the end of the reporting period (require adjustment of FS)
Non-adjusting events are…
Indicative of conditions that areas after the reporting period, must be disclosed if material (Disclose nature and estimated financial effect of event.)
In IAS 10, if something happens after the financial statement have been authorised for issue (once ready to publicize)
If events occur after issue authorisation, not in scope for IAS 10.
A condition is…
The action that creates the court case (sale of faulty goods, inappropriate dismissal).
Government grants and assistance are…
Of two types, for expenses (wages) or assets (capital gains, money for assets). Must be disclosed on FS.
Government assistance (non-cash)…
Shouldn’t be recognised in the Financial statements - unquantifiable.
IAS 20 allows…
Government grants to be presented as a credit in SPL or deducted from related expense.
The double entries for government grants (i.e. for wages) are…
Initially Dr Cash, Cr Deferred income. Later Dr Def income Cr Income Dr Wages Cr Cash if presented as credit in SPL. Or Dr Def income, Dr wages Cr cash to deduct from expense.
To repay a government grant the entries are…
Dr Deferred income, Cr Cash, Dr SPL.
In terms of government grants. The following should be disclosed:
The accounting policy, the nature and extent of grants recognised, indication of other government assistance, unfulfilled conditions and other contingencies.
The initial double entries for government grants (i.e. for NCA) are…
Dr NCA and Cr Cash to buy the asset. Dr Cash and Cr NCA (or Cr Deferred income if not netting off) with grant (reducing cost of NCA).
When using the government grant for assets…
For netting off, simply do accumulated depreciation on net assets cost. For deferred income method, Depreciate asset at normal cost then double entry release deferred income into income gradually over period.
If a capital grant needs to be paid back under the netting off method:
Increase asset to original value with: Dr NCA Cr Cash and then Dr Dep exp Cr Acc dep.
If a capital grant needs to be paid back under the deferred income method:
Dr deferred income, Cr Cash Dr SPL (Balancing)
IAS 33 achieves…
comparability by, defining earnings, determining number of shares in EPS, requiring standard presentation in SPL.
In the EPS calculation…
Earnings is the net profit or loss for the period, Shares is the weighted average number of ordinary shares outstanding during the period.
The PE ratio is…
Price earnings ratio: Market value of share / EPS
Redeemable preference shares are treated as…
Debt - finance cost.
Irredeemable preference share are treated as…
Equity so dividend deducted from net profit in SPL.
Careful when there are irredeemable preference shares in calculating EPS
Remove the dividend from the IPS before you do earnings / shares. And shares will just be the number of ordinary ones.
To account for distorted EPS in bonus issue…
Restate previous EPS but multiply previous number of shares by bonus fraction (Shares after bonus issue / shares before bonus issue).
To find the TERP (theoretical ex rights price)…
Take the average price per share.
How do you find the weighted average number of shares after a rights issue.
First find the average price of each share (TERP), then find the bonus fraction (market value of share / TERP {your average cost}), Then multiply number of shares before this rights issue by this bonus fraction.
The companies act states that a provision made in the accounts is a…
realised loss.
The companies act states that a revaluation surplus is …
an unrealised profit.
The companies act provides that if under revaluation, non-current assets get higher depreciation…
Additional depreciation may be treated as part of realised profit for dividend purposes.
The companies act provides that on disposal of a revalued asset and unrealised surplus or loss on valuation…
becomes immediately realised.
A company may not reduce its net assets below…
the aggregate amount of its called up share capital and distributable reserves.
Undistributable reserves are…
The share premium account, excess unrealised profits over unrealised losses, any other prohibited reserve.
Distributable profits for a private company can be calculated:
Accumulated realised profits less accumulated realised losses less excess of unrealised losses over unrealised profits.
If an item is sold but payment will come later how do you do double entries?
First Dr receivables Cr Sales with amount it could have been sold for originally. Then Cr finance income and Dr receivables each year with interest. At end include profit.
Using the deferred income method for government grants, to use the grant each year you would… (Double entries)
Dr Deferred income, Cr Other Income
An intangible asset can only be revauled if…
There is an active market, items traded are homogeneous, willing buyers and sellers can be found at any time, prices of the item are available to the public.
If an intangible asset has an indefinite useful life then the impairment review should be done…
Annually
After a rights issue…
Work out (Earlier price of shares / TERP:average price of shares) Multiply this by earlier number of shares and time apportion to find total number of shares.
An operation is discontinued if…
It constitutes a co-ordinated plan to dispose of a separate major sector or geographical area in the business.
If there is a change in the accounting estimates this should be accounted for…
By changing the current year figures but not the previous years’ figures. (IAS 18)
Events (after the year end) require adjustment in the financial statement if…
They are adjusting events. I.e. they provide further evidence of a condition existing at year end.
Systems of quality control are input by an auditor under IAS …. to ….
220 to reduce risk of negligence claims.
Two given ways in which the FRC promotes audit quality…
Issuing ISAs, Ethical Standards and occasional briefing papers on matters such as professional scepticism, Monitoring compliance through reviews of audit firms and making their finding public.
ISA 220 concerns… (Also when?)
Obtaining information considered necessary in the circumstances about the client. Done before accepting engagement and engagement letter.
An engagement quality control review should…
be carried out for listed entities and high risk audits.
Liability caps require the approval of…. and cover…
The shareholders and cover one year at a time.
Things required by ISA 210 are…
The objectives and scope of the audit of the financial statements, the responsibilities of the auditor, the form and contents of any reports that will be issued. (NOT the timetable for the audit).
When recognising revenue for goods and services…
Make sure it is time apportioned correctly. Goods immediately, and services over the given period.
When doing inventory valuations where there are different product bases… IAS2 says you should…
The LIFO value isn’t allowed. Only FIFO. Do lower of FIFO and NRV on each line item.
If a store is selling hedgetrimmers which are going to be really popular so a deposit is taken, they should recognise revenue…
When the trimmers are delivered.
If the outcome of a services transaction cannot be reliably estimated…
..then the only revenue that can be recognised is the extent that expenses incurred are recoverable from the customer.
If sold items for less than fair value (goods and services), recognise them…
In proportion to their fair value.
Remember, if doing SOD and the payment is in advance…
The number of payments needed will be one less.
Sounds obvious but for splitting liabilities between current and non current…
First work out how much is due in the next year, the remainder is what is due later on… (Tripped up on this question before when payments were at the start of the year.)
When doing a finance leaseback, if you are trying to work out the net profit or loss for the year think about…
Depreciation, is the profit spread over a period as deferred income, and only charge out the finance cost for year not the amount actually paid out…
On finance leaseback, in If CA less than FV less than proceeds.
Recognise FV - CA now and put Proceeds - FV in deferred income.
In a finance leaseback, if the proceeds are less than the fair value then…
Recognise loss immediately, unless the yearly payments are less than the normal amount. In which case the person is being tactical so can spread the loss out. Also if fair value is less than carrying value then do impairment loss first.
If a company sells an asset but will be highly likely to buy it back, consider it as… (also double entries?)
A secured loan. So Dr Cash, Cr Loan. Then add interest to the Loan (Dr Interest Exp, Cr Loan). This is with IAS 18.
What would be some disadvantages as treating a government loan as a deduction to the expense rather than crediting it to SPL?
It would make the expense seem very small and so incomparable to other expense categories and other similar entitities that didn’t receive grants. If this is done then it should be dislosed in the notes.
If a company offers interest free credit for a year on a sale and has a cost of capital of 9% for example…
the liability should be recognised as the present value when interest will begin/when you have to pay
In working out outstanding liability in a finance lease do…
Total cash price of item - deposit paid so far - amount paid so far + interest built up so far.
What to do with costs to sell when doing a revaluation before Held for Sale…
Don’t include costs to sell in revaluation/ imparment. Then recognises as fair value less costs to sell so costs are recognised in SPL as impairment loss.
If it says the company usually earns a gross margin of 20% on contracts then…
20% of final amount is the earnings. So divide by 80%.
When looking at past items - An incorrect adjustment to a wrong estimate of NRV and a lack of liability provision for a legal claim expected to win…
Do not need to be adjusted for, for that period. Normal estimation errors and recognised in he current accounting period.
In order to be classified as discontinued a component must…
Have been disposed of or held for sale (highly likely for soon sale). Seperate major line of business or geographical area of operation. Must be clealry distinguished operationally and for financial reporting purposes.
Costs that can be included in inventory are…
Purchase, Conversion and other costs in bringing the inventories to their present location and conditions.
In trying to decide if an event is adjusting or not, and it happened after the reporting period but was so significant (i.e. changes going concern)…
Then it should be adjusted.
The date of sale when considering discontinued operations…
Is irrelevant, only consider when it was decided to sell it.
Inventories should be valued at…
Lower of cost and net realisable value (scrap value not relevant).
In working out costs for inventories, “Attributable distribution overheads to be incurred” are…
To be included in NRV. (Deduct)
Why can’t admin go into inventory prices?
They can’t be directly attributable to inventory.
When giving remaining amounts of grant into SFP under deferred income method:
Put the remainder in Liabilities. Split into current and non-current by working out what will be paid from deferred income next year.
Investment income in the SPL comes…
After Finance costs.
Putting dividends paid into statements…
If dividend for previous year decided in current year, include it in this year’s statements. If a dividend for this year is proposed next year, just put it in the notes.
If it says “These items were already charged to Admin” or something then…
Put it in the notes: “The profit from operations is arrived after charging:”
A provision for warranty is probably…
A non-current liability.
If staff bonuses are to be provided for in SPL and SFP…
Put them in current liabilities.
In working out distributable amount feel free to …
Discount unrealised losses and warranty provisions etc.
IAS 38 does not allow the recognition of… (an intangible)
Internally generated goodwill, brands, mastheads, publishing titles etc. As costs cannot be separated from development of business as a whole and measured reliably.
When consideing acounting treatment for intangibles consider…
Depreciation, if revaluation then all assets in class revalued and only done if fair values can be determined in reference to active market. IAS36 requires annual impairment review. Are benefits likely to flow to entity?
Deferred income in the SPL SFP comes under…
Non-current and Current liabilities. (split)
The lessor is…
The person leasing out the item.
When asked to weigh up leasing options consider…
Who has risks and rewards. What kind of lease and so is it capitalised?
If you end up paying some extra and its a prepayment… In the SPL SFP this would go in…
Trade and other receivables… It’s an asset.
IN statement of cashflows… payables relating to purchase of non-current assets…
Shouldn’t be in payables.
When working out cash from share issue in cashflow…
Do share capital + premium before and after. T table.
If there are five directors of each firm and four of the directors are the same on both firm are the firms related?
Yes as the majoritydirectors can have influence over both.
James plc has two assiciated companies, Hector Ltd and Frances Ltd/ Is Hector Ltd a related party of Frances Ltd?
James plc has influence over them both but not control so they wouldn’t be seen as related. Associated as in majority share holding.
If two companies have one director in common and there is no mention of joint shareholdings…
They wouldn’t be seen as related.
As per IAS 24 if two companies are members of the same group…
They are related.
In provisions for shutting down of part of company, which of these are valid: Redundancy costs, lease termination costs, relocating staff to other divisions, impairment losses.
Only Redundancy costs and lease termination costs. (The impairment losses would be offset against the carrying amount of the related non-current assets in accordance with IAS 36 - Impairment of assets).
If there is a calim against a company, and some of the money they will owe is likely to be paid from producer of good…
Don’t include this in the provision note. Write it in a separate section called “Contingent assets”.
If you sell an item at the START of the year and payment is due in 3 years, what is the accouting treatment?
Initially: Dr RCA (PV) Cr Sales/Revenue
Subsequently (by YE and future years): Dr RCA (unwinded discount)
Cr Interest Received
on a sale or return basis, when can you recognise the sale?
when the buyer sells it to a third party or the expiry date. until then you can’t recognise the revenue, and the inventory should still be included in sofp.
On lay away, when do you recognise revenue and how do you treat payment instalments?
only recognise once the asset is transferred UNLESS from past experience the sales is likely to be completed, a significant deposit has been received and you are ready to despatch.
any instalment payments before this is a liability! deferred income
What is the treatment for sales and repurchase?
DO NOT REMOVE THE ASSET. Treat like a loan. The repayment amount will be higher because it will include interest
Dr Cash (amount received) Cr Loan (amount received)
Cr loan (interest apportion)
Dr finance charge
how do you recognised Revenue from subscritipions
straight line basis based on number of publications dispatched.
if revenue includes free services for the next 3 years
the revenue for the services should be deferred and recognised in the period servicing takes place
What is the subsequent treatment of financial assets? Table…
b/f (fair value), amortisation (fairvalue x effective rate), cash (nomincal value x coupon rate), c/f
