Financial Accounting and Reporting Deck Flashcards
1
Q
What items can you net off in a Financial Statement?
A
VAT, Immaterial items (e.g. foreign exchange), Government grants.
2
Q
What is EPS?
A
Earnings per share (Profit after tax / Number of shares)
3
Q
What is realised income?
A
Income you have or will receive very shortly.
4
Q
What is the layout for Classification by function?
A
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.
5
Q
What are the overheads in the financial statement?
A
Other income, Distribution costs, Admin expenses.
6
Q
What is the layout for Classification by nature?
A
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.
7
Q
What is the cost model for revaluation?
A
Held on SFP at carrying value.
8
Q
What is the revaluation model?
A
Held on SFP at fair current value.
9
Q
You definitely have to do a revaluation when?
A
There’s a material difference between fair value and carrying value.
10
Q
If you do revaluation which increases price over initial price what do you do?
A
Dr extra amount, Dr Acc Depp so far, Cr Revaluation reserve.
11
Q
When does something from the Revaluation reserve go to retained earnings?
A
When is sold.
12
Q
What is a treasury share?
A
When companies buy back their shares (i.e. may buy 1% of each share)
13
Q
How are non-current assets listed?
A
In order of increasing liquidity.
14
Q
Provisions are (current/non-current)
A
Always current unless specified
15
Q
You can’t pay ordinary dividends until?
A
You’ve paid preference ones.
16
Q
Someone is only “owed” a dividend?
A
When the cash is in their account, a company can decide to not pay any time.
17
Q
How do you find the Profit Generated from Operations indirectly?
A
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
18
Q
What are the three sections of a cashflow statement?
A
Cash flows from operating activities, cash flows from investing activities, cash flows from financing activities. Net increase, Cash and equiv at beginning, at end.
19
Q
What are the sections of cash flows from operating activities?
A
Cash generated from operations, Interest paid, tax paid, net cash from operating activities.
20
Q
What are the sections of cash flows from investing activities?
A
Proceeds from sale of equipment, purchase of PPE, Interest received, Purchase of investments, dividends received, net cash used in investing activities.
21
Q
What are the sections of cash flows from financing activities?
A
Proceeds of issue of shares, repayment of loans, dividends paid.
22
Q
In SPL SFP - Discounts allowed and Received go in?
A
Discounts allowed into admin expenses, discounts received into other operating income
23
Q
In SPL and SFP, rental income goes?
A
Into other operating income.
24
Q
In SPL and SFP, Plant and machinery depreciation can go in?
A
Cost of sales - not sure if this is common.
25
In SPL and SFP, Motor vehicle depreciation goes in?
Distribution costs.
26
In SPL and SFP, profit on disposal of non current assets can go in?
Distribution costs.
27
In SPL and SFP, Interest received goes in?
Investment income.
28
In SPL and SFP, money from insurance claim goes in ?
Trade and other receivables.
29
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.
30
In SPL and SFP, wages go into the?
Admin expenses
31
What is the time value of money?
Money changing value due to interest, risk, ability to invest now.
32
What is compounding?
Helps us to find terminal value of cashflow. How much it will be worth in future.
33
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.
34
Capital expenditure includes?
Price of capital item, delivery costs, non-refundable taxes, construction costs, testing, relevant borrowing costs, enhancing costs, future costs.
35
Revenue expenditure includes?
Repairs, renewals (i.e. road tax on vehicle), repainting, staff training, time allocated on machine.
36
Abnormal costs to PPE are recorded?
As expenditure in SPL as does not provide economic benefits (i.e. delays due to bad weather costs)
37
By-products from PPE are recorded?
Credited from cost of asset (i.e. selling misshapen biscuits from biscuit machine).
38
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.
39
IAS16 refers to?
When you can capitalise expenditure?
40
IAS23 refers to?
Borrowing costs (interest) in construction of assets. Match costs of borrowing to benefits. Finance costs capitalised.
41
If an asset is incomplete at year end, it is classified as?
An asset under construction. (No depreciation)
42
When adding borrowing costs to PPE, deduct?
Any interest gained from surplus borrowing.
43
Capitalisation starts when?
Expenditure is incurred on asset, borrowing costs are incurred, activities undertaken to prepare asset for use (i.e. obtaining planning permission).
44
Capitalisation stops when?
all activities preparing asset for use are complete.
45
Stop capitalising borrowing costs as soon as?
The PPE has been completed/ constructed.
46
The depreciable amount is?
The cost of the asset less the residual value (value if sold at end of life now - no inflation).
47
Sum of Units is a form of depreciation where?
Depreciation is calculated as a ratio of the units produced.
48
Depreciation starts and ends when?
Starts when asset is available for use. Ends when fully depreciated.
49
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.
50
In the cost model?
Assets are carried at cost less accumulated depreciation.
51
In the revaluation model?
Assets are carried at their fair value less accumulated depreciation.
52
If revaluation policy is adopted?
It must be applied consistently to all assets in the class (land and buildings, motor vehicles, fixtures and fittings)
53
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.
54
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.
55
Why might shareholders not want to approve a revaluation?
It will increase depreciation and reduce profits so less dividends.
56
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.
57
Remember, don't depreciate?
Land
58
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.
59
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.
60
Goodwill and intangible assets (impairment) should be tested.
Every year.
61
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)
62
Impairment is when the..
Recoverable amount is less than the carrying amount.
63
The recoverable amount is ?
the higher of value in use, or fair value LESS costs to sell.
64
Value in use is?
Present value of future cashflows generated from item.
65
Cashflow projections should exclude?
the effects of future restructurings and should generally cover no longer than 5 years.
66
Treating for impairment loss in the cost model:
Loss charged in full to PL, DR PL, Cr Asset carrying amount or accumulated depreciation.
67
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.
68
An NCA is held for sale if?
Its carrying amount will be recovered principally through a sale transaction rather than continued use.
69
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.
70
Non-current assets held for sale on the SPL SFP are in?
The SFP under current assets, no depreciation charged from reclassification
71
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)
72
On reclassification as an NCA held for sale?
an impairment review must be done. Carrying amount =
73
After disposal, any remaining amount in revaluation reserve?
Must be released to retained earnings: Dr Revaluation reserve, Cr retained earnings.
74
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
75
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.
76
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.
77
Safety tests are capitalised for as long as?
They last for.
78
Interest on loans to build PPE can be capitalised?
Only during the building of the PPE.
79
What are enhancing qualitative characteristics of a financial statement?
Comparability, Understandability, Timeliness
80
If information is fairly presented it is?
Reliable, Comparable, Understandable and Relevant.
81
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)
82
The matching process..
Is depreciation (matching income and spending on asset)
83
Examples of intangible assets?
Patents, copyrights, licenses, trademarks, brand names, franchises.
84
An asset is identifiable if?
It is capable of separate disposal or arises from contractual or other legal rights.
85
Internally generated goodwill does not fall within the IAS38 definition of ?
an intangible asset, cannot be disposed of individually.
86
Assets can be recognised if?
Probably to get economic benefits, cost of asset can be measured reliably/
87
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.
88
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
89
An active market is one where?
Items are homogeneous, buyers and sellers can be found at any time, prices are available to public.
90
An intangible asset can be revalued if the fair value can be?
determined by reference to an active market.
91
Internally generated good will and brand?
Cannot be capitalised. You can't show Coca Cola goodwill to someone.
92
Amortisation for finite and indefinite intangibles?
If finite, amortise over useful life. Amortisation reflects pattern of use (ratios). If indefinite test for impairment annually.
93
To set up a provision the accounting entries are to?
Dr Expense (SPL) Cr Provision (SFP)
94
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)
95
If a provision no longer meets the recognition criteria it should be derecognised with entries:
Dr Provision, Cr PL
96
When provision is incurred use the double entry:
Dr Provision, Cr Cash (difference between paid and provision recognised in SPL)
97
Provisions cannot include?
Gains or losses from future disposals or operations,
98
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.
99
Unavoidable costs are the lower of?
the cost of fulfilling the contract and any compensation or penalties from failure to fulfil
100
Restructuring is?
Programme that materially changes what the entity does or how it does it.
101
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.
102
In a restructuring can a provision cover staff retraining?
No - this counts as ongoing activities of company.
103
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).
104
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.
105
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
106
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
107
If obligation to dismantle exists, should be capitalised in accordance with IAS
16 and 37?
108
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.
109
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.
110
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.
111
For a contingent liability:
Disclose nature of contingency, estimate of financial effect, indication of uncertainties, possibility of reimbursement.
112
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.
113
A contingent asset is?
A probable asset from a past event. Disclose nature of asset and where practicable the financial effect.
114
The journal entry to recognise a virtually certain asset is:
Dr Receivable, Cr PL (other income)
115
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.
116
Provision and contingent liabilities require the obligation to arise?
from past events.
117
The IAS that decides on provisions/ contingent liabilities or assets is?
IAS 37
118
In terms of a provision, if the board could reverse the decision and not announce it?
Not a provision, outside scope of IAS 37
119
When documenting notes for provisions lay out?
Financial statement extracts (assets (NCA, PPE), Liabilities (provisions)). Notes of Provisions, contingent liabilities, other (future events)
120
If there is no active market for an item then intangible assets (revaluation)?
Cannot be revalued
121
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.
122
A finance lease is where?
IAS 17 The lessee deals with the expenses and rewards. E.g. renting a car for its full life.
123
PPE is dealt with in IAS
16
124
IAS 16 qualitative characteristics
Understandability, Relevance, Comparability, Faitful representation
125
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.
126
The type of lease a land will take is likely to be?
Operating as it has indefinite useful life.
127
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.
128
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).
129
To record the acquisition of an asset under a finance lease. Double Entry:
Dr Non Current Asset, Cr Finance lease liability.
130
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.
131
Record finance lease payments as (double entry)?
Dr Finance lease liability, Cr Cash
132
Record interest accruing on finance lease liability (double entry ) as?
Dr Finance Charge (SPL) Cr Finance lease liability
133
The actuarial method for interest expenses on finance lease is?
Finance charge calculated for the period as X% x balance of liability outstanding.
134
PVMLP stands for
present value of minimum lease payments
135
If you have to find the finance charge for a finance lease?
Total lease payments less amount "borrowed" (capitalised) (lower of FV and PVMLP)
136
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.
137
If a finance lease has a deposit paid at a start, the double entry is?
Dr Finance lease liability, Cr Cash
138
For finance leases, depreciate at shorter of?
UEL and total lease term.
139
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.
140
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
141
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
142
For leaseback on operating lease…
If carrying amount exceeds Fair value do impairment loss in SPL first.
143
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.
144
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.
145
B1102 For operating leaseback if sales proceeds equals fair value…
Recognise profit immediately.
146
For Sale and operating leaseback…
Check for need to do impairment first then use B1102 of book.
147
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.
148
Dividends are recorded as assets when…
Shareholders right to receive payment is established.
149
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.
150
The qualities of an auditor are…
Accountability, Integrity, Objectivity and Independence, Competence, Rigour, Judgement, Good communication, Association, Providing value.
151
Accounting policies should only really be changed if…
It is required by IFRS or it will result in more reliable financial statements.
152
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.
153
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).
154
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.
155
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.
156
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.)
157
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.
158
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)
159
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.
160
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…
161
IAS 21 is to…
produce rules an entity should follow in the translation of foreign currency activities.
162
The historic rate is…
The foreign transaction rate in place at the time of transaction
163
The closing rate is…
The foreign transaction rate at the reporting date.
164
Monetary/non-monetary assets /liabilities are…
Whether they convert easily to cash (receivables, payables, loans) or not (inventory, PPE).
165
The presentational currency is…
The currency financial statements are presented.
166
The functional currency is…
The currency of the primary economic environment.
167
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.
168
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)
169
IAS 24 refers to…
Related party disclosures. Identify related parties, transactions, outstanding balances, when and what disclosures should be made,
170
The qualitative aspects of IAS 24 - related parties are…
Relevance, Predictive and confirmatory value, comparability.
171
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.
172
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)
173
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.
174
Is an entity related if it has a director in common?
Not necessarily.
175
IAS 10 relates to…
accounting for events in the post year end period.
176
Adjusting events are…
Those that provide evidence of conditions that existed at the end of the reporting period (require adjustment of FS)
177
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.)
178
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.
179
A condition is…
The action that creates the court case (sale of faulty goods, inappropriate dismissal).
180
Government grants and assistance are…
Of two types, for expenses (wages) or assets (capital gains, money for assets). Must be disclosed on FS.
181
Government assistance (non-cash)…
Shouldn't be recognised in the Financial statements - unquantifiable.
182
IAS 20 allows…
Government grants to be presented as a credit in SPL or deducted from related expense.
183
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.
184
To repay a government grant the entries are…
Dr Deferred income, Cr Cash, Dr SPL.
185
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.
186
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).
187
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.
188
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.
189
If a capital grant needs to be paid back under the deferred income method:
Dr deferred income, Cr Cash Dr SPL (Balancing)
190
IAS 33 achieves…
comparability by, defining earnings, determining number of shares in EPS, requiring standard presentation in SPL.
191
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.
192
The PE ratio is…
Price earnings ratio: Market value of share / EPS
193
Redeemable preference shares are treated as…
Debt - finance cost.
194
Irredeemable preference share are treated as…
Equity so dividend deducted from net profit in SPL.
195
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.
196
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).
197
To find the TERP (theoretical ex rights price)…
Take the average price per share.
198
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.
199
The companies act states that a provision made in the accounts is a…
realised loss.
200
The companies act states that a revaluation surplus is …
an unrealised profit.
201
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.
202
The companies act provides that on disposal of a revalued asset and unrealised surplus or loss on valuation…
becomes immediately realised.
203
A company may not reduce its net assets below…
the aggregate amount of its called up share capital and distributable reserves.
204
Undistributable reserves are…
The share premium account, excess unrealised profits over unrealised losses, any other prohibited reserve.
205
Distributable profits for a private company can be calculated:
Accumulated realised profits less accumulated realised losses less excess of unrealised losses over unrealised profits.
206
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.
207
Using the deferred income method for government grants, to use the grant each year you would... (Double entries)
Dr Deferred income, Cr Other Income
208
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.
209
If an intangible asset has an indefinite useful life then the impairment review should be done...
Annually
210
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.
211
An operation is discontinued if...
It constitutes a co-ordinated plan to dispose of a separate major sector or geographical area in the business.
212
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)
213
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.
214
Systems of quality control are input by an auditor under IAS .... to ....
220 to reduce risk of negligence claims.
215
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.
216
ISA 220 concerns... (Also when?)
Obtaining information considered necessary in the circumstances about the client. Done before accepting engagement and engagement letter.
217
An engagement quality control review should...
be carried out for listed entities and high risk audits.
218
Liability caps require the approval of.... and cover...
The shareholders and cover one year at a time.
219
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).
220
When recognising revenue for goods and services...
Make sure it is time apportioned correctly. Goods immediately, and services over the given period.
221
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.
222
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.
223
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.
224
If sold items for less than fair value (goods and services), recognise them...
In proportion to their fair value.
225
Remember, if doing SOD and the payment is in advance...
The number of payments needed will be one less.
226
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.)
227
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...
228
On finance leaseback, in If CA less than FV less than proceeds.
Recognise FV - CA now and put Proceeds - FV in deferred income.
229
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.
230
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.
231
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.
232
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
233
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.
234
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.
235
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%.
236
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.
237
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.
238
Costs that can be included in inventory are...
Purchase, Conversion and other costs in bringing the inventories to their present location and conditions.
239
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.
240
The date of sale when considering discontinued operations...
Is irrelevant, only consider when it was decided to sell it.
241
Inventories should be valued at...
Lower of cost and net realisable value (scrap value not relevant).
242
In working out costs for inventories, "Attributable distribution overheads to be incurred" are...
To be included in NRV. (Deduct)
243
Why can't admin go into inventory prices?
They can't be directly attributable to inventory.
244
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.
245
Investment income in the SPL comes...
After Finance costs.
246
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.
247
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:"
248
A provision for warranty is probably...
A non-current liability.
249
If staff bonuses are to be provided for in SPL and SFP...
Put them in current liabilities.
250
In working out distributable amount feel free to ...
Discount unrealised losses and warranty provisions etc.
251
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.
252
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?
253
Deferred income in the SPL SFP comes under...
Non-current and Current liabilities. (split)
254
The lessor is...
The person leasing out the item.
255
When asked to weigh up leasing options consider...
Who has risks and rewards. What kind of lease and so is it capitalised?
256
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.
257
IN statement of cashflows... payables relating to purchase of non-current assets...
Shouldn't be in payables.
258
When working out cash from share issue in cashflow...
Do share capital + premium before and after. T table.
259
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.
260
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.
261
If two companies have one director in common and there is no mention of joint shareholdings...
They wouldn't be seen as related.
262
As per IAS 24 if two companies are members of the same group...
They are related.
263
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).
264
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".
265
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
266
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.
267
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
268
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
269
how do you recognised Revenue from subscritipions
straight line basis based on number of publications dispatched.
270
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
271
When working out an amount of revenue due this year, the deferred income counts as...
A liability.
272
if you are an agent selling items on behalf of a principle, what can you recognise
the commision only. the remaining value is a liability cause you need to pay that to the principle
273
when should advertising revenue be recognised? i.e TV company sharing the companies for commericials
when the public sees the ad
274
When working out finance leases... If you are given a yearly interest rate and need to do bi-yearly payments...
Split the interest in half exactly. (Even though it won't be the same).
275
if a sale includes service for a few year AND the company gave a discount
apply the discount to both service componenet and asset. Use the discounted rate for determining what should revenue should be recognised now and what should be deferred
276
When splitting the finance lease liability into current and non-current.
Find the amount owed at the end of the 1st year to come, after the 1st year payment (perhaps before the interest has been added if payment is in advanced). This is NC, then deduct this from amount owed at current moment (the B/f).
277
When presenting the Finance lease liability you can either do...
It on a gross basis: how much is actually going to be paid out in 1 year, 2 to 5, then work out finance charges as a balancing charge to amount owed in future. On net basis: How much is due in one year, 2 to 5 years (i.e. current and non current liabilities - more horrible numbers).
278
IAS 32 deals with
how you classify financial instruments and their presentations.
279
IAS 39 concerns
How financial instruments are measured and when they should be recognised.
280
IFRS 7 deals with
disclosure of financial instruments in the financial statements.
281
A financial asset is…
Cash, equity (as you'll get dividends), contractual right to receive financial asset, contractual right to exchange financial assets on potentially favourable terms. (Derivatives)
282
A financial liability is…
Obligation to pay cash (payable or exchange). Contractual obligation to exchange on unfavourable terms.
283
An equity instrument is…
Residual interest in a company. Saying that they have Ordinary shares on their SFP.
284
(Financial Instruments) Redeemable preference shares are classified as…
Liabilities
285
(Financial Instruments) Irredeemable preference shares should be classified as…
Equity unless there is a mandatory obligation to pay a dividend (then a financial liability)
286
(Financial Instruments) Redeemable preference shares should be treated as …
Finance costs in the SPL
287
(Financial Instruments) Irredeemable preference shares should be taken..
through RE in SOCE unless there is a mandatory dividend obligation then Finance costs.
288
Financial asset is recognised at…
Fair value (usually cash paid plus transaction costs)
289
A financial liability is recognised at…
Fair value usually is net proceeds received (transaction costs deducted).
290
Amortised cost table e.g..
b/f then amortisation then cash then c/f
291
A normal redeemable bond at the expiry date…
Can be redeemed for cash.
292
A convertible bond is…
A redeemable bond where the holder has an option to convert to shares. So is part equity and part liability.
293
To do split accounting for convertible bonds INITIALLY
Dr Cash (total value)
Cr liability (PV of all future cashflows: nominal value x coupon rate x discount factor)
Cr equity (balancing figure)
294
To do split accounting for convertible bonds SUBSEQUENTLY
In the table, take the libaility figure of PV of future cash flow as the b/f.
remember amortisation (interest) is using the discount rate. (this will be Dr finance charge Cr liability)
Cash will be based on nominal x coupron rate (Cr cash, Dr Liability)
295
A treasury share is when…
A company reacquire their own share rather than making dividends. Return excess capital to shareholders.
296
what is double entry when company takes out treasury shares? what happens when those shares are then reissues?
initially Dr. treasury share Cr Cash
when they sell them outside Dr Cash, Cr Treasury Share, Cr/Dr Equity Balancing figure
297
What are the disclosure requirements for financial instruments?
quantitative- must disclose carrying value/fair value of each class or financial instrument
Qualitative: must disclose information to enable users to understand mgmt attitude to risk. Disclosure about credit risk, liquidity risk and market risk
298
When PLtd acquires shares in another company, the double entry is…
Dr Investment, Cr Cash
299
The main standards for consolidation questions are…
IFRS 3 and 10 - perhaps state "as per…." at start.
300
What should you submit regarding group accounts?
Submit single entity accounts to companies house, submit consolidated accounts to companies house also.
301
Steps to a consolidated statement of financial position:
Consolidate 100% of assets and liabilities of P and S except P's investment in S (replaced with goodwill), include P's share and premium only in equity, consolidate P's retained earnings but only P's share of S's retained earnings since acquisition, If P does not 100% own S then reflect in equity that non-controlling interest (NCI) owns share of net assets being consolidated.
302
IFRS 10 defines controls as 3 things:
Power (majority shares or directors), exposure to risk and rewards, use of power to affect amount of variable return.
303
Other than power through voting rights, power can also arise through…
rights to appoint or remove KMP who can direct, rights to appoint or remove entities that direct activities, rights to direct investees in transactions for benefit of other investors, rights specifically specified in management contract.
304
IFRS allows you to consolidate different year end dates that…
are less than 3 months apart (though usually parent forces year end change on sub).
305
IFRS 12 requires disclosure of (in consolidations)…
judgements made in determining nature of interest (control), nature of interest not controlled (was control signed away?). For subsidiaries interest NCI's have in group activities, nature and extent of restrictions over investor use of group assets and liabilities, nature of risks associated with entity's interests in consolidation, consequences of changes in ownership interest in subsidiaries.
306
The five workings for consolidated financial statements are…
Establish group structure, Find the net assets of the subsidiary, find the Goodwill on acquisition, find the Non-controlling interest, find the group retained earnings, and then other group reserves (like revaluation surplus)
307
The first working for consolidated financial statements is…
The Parent, subsidiary diagram with percentage control and circle around it.
308
The second working for consolidated statements of financial position is…
Net assets of the subsidiary only. Just do Equity. 3 columns: At reporting date, at date of acquisition, movement since acquisition, Rows: Share capital, premium (no change), Retained earnings (leave gap), revaluation reserve.
309
The third working for consolidated statements of financial position is goodwill on acquisition and is…
Consideration paid + non controlling% of net assets at acquisition, less 100% net assets at acquisition. This gives goodwill at acquisition, you may then have to impair them, this gives goodwill carried forward on CSFP.
310
The fourth working for consolidated statements of financial position is Non-controlling interest and is…
NCI assets at acquisition plus Share of post-acquisition reserves.
311
The fifth working for consolidated statements of financial position is group retained earnings and is…
100% of Parent retained earnings plus parent % of S retained earnings post acquisition (W2) less goodwill impairment to date (W3) plus any gain on bargain purchase (W3)
312
The sixth working for consolidated statements of financial position is Other group reserves and is…
100% P's revaluation surplus and P% of S's post acquisition revaluation surplus.
313
For intergroup loans…
Net them off in group accounts.
314
If a parent owes a subsidiary some money or vice versa, in the consolidated accounts…
They might not agree (cash or goods in transit), adjust for them first. Pretend received cash to equalise (Dr Cash, Cr receivable)
315
Cash in transit adjusting double entry is…
Dr Cash in transit, Cr receivables current account
316
Goods in transit adjusting entry double entry…
Dr Inventory, Cr Payables current account.
317
Unrealised profit is when…
Companies in groups sell stuff to each other and make profit, but as group there is no profit. Reduce cost of good back to original cost to group.
318
Only adjust unrealised profits that…
Remain after year end.
319
A PURP is a…
Provision for unrealised profit.
320
To remove unrealised profit if P sells to S… (Double entry)
Dr Group retained earnings, Cr Group inventory (always adjust retained earnings of seller)
321
To remove unrealised profit if S sells to P… (Double entry)
Dr Subsidiary retained earnings (W2) Cr Group inventory (on CSFP) (always adjust retained earnings of seller)
322
The difference between mark-up and margin…
Mark-up is the percentage increase, margin is the percentage of final amount.
323
If one group member sells non-current assets to another group member, adjustments must be made that…
recreate the situation as if the sale had not occurred. I.e. no profit on sale and depreciation should be based on original cost of asset to group.
324
To work out the PURP for non-current assets when they are sold intercompany… (and double entry adjustments)
Carry amount of NCA at y/e after transfer less CA if transfer hadn't taken place (works out change in depreciation). Then Dr RE of seller (P(W5) S(W2)) and CR NCA on CSFP.
325
When doing consolidated group statements the main statement contains:
NCAs: PPE, Intangibles (W3), Current assets, Equity attributable to owners of parent: Share capital, retained earnings (W5). Non-controlling interest (W4), Total Equities, Liabilities.
326
Remember that the amount paid for shares and that value of the shares in group consolidation…
May not be the same.
327
To be identifiable an asset must...
Have arisen from a contractual right or be capable of separate disposal.
328
Intragroup receivables and payable must...
be netted off on the CSFP.
329
The intra-group receivable and intra-group payable are referred to as...
a "current account".
330
In CSFP if there is cash in transit...
Then pretend it is there.
331
Some adjustments that might be needed with intragroup trading:
account for cash/goods in transit. Cancel current accounts. Deal with any unrealised profit if goods still held by a group company at year end. Write down inventory value to cost rather than the amount at which it was sold between P and S.
332
The difference (when assigning PURP) when P sells to S ans S sells to P
When P sells to S, P will have to reduce it's retained earnings in W5. When S sells to P, S will have to reduce it's retained earnings and movement in W2.
333
To calculate a non-curent asset PURP...
Do carrying amount of NCA at y/e after transfer less carrying amount of NCA at y/e had transfer ot happened.
334
The double entry adustment for transfer of NCA PURP is...
Dr retained earnings (in correct W), Cr PPE
335
Any dfference between the carrying value in S's books and the fair value on acquisition of S is treated as...
a "fair value uplift". Shown on the face of the SFP and in W2. Depreciation charged on this from point of acquisition. These adjustments are only in the Group FS.
336
Any goodwill held in books of subsidiary at acquisition...
Is not identifiable and must be removed from Net Assets of subsidiary at date of Acquisition and CSFP.
337
IFRS 3 permits that on acquisition where there may not be time to take fair values...
provisional fair values may be used. Once final fair value confirmed, accounting treatment depends on when confirmation happened in reference to measurement period (12 months after acquisition).
338
If confirmaiton of fair value happens within the measurement period then...
an adjustment is made retrospectively and goodwill is recalculated using final fair values. Asset or liability is increased/decreased on CSFP.
339
If confirmation occurs outside the measurement period...
Treated as a change in accounting estimate and adjusted for prosepctively. Goodwill not re-stated to include final FV. Impairment review performed.
340
The six components of consideration are...
Cash, deferred cash, shares, deferred shares, contingent cash, contingent shares.
341
All consideration for acquisition of companies must be...
at fair value.
342
The fair value of shares in P paid in consideration is...
the market value at date of acquisition.
343
The fair value of deferred cash paid in consideration for acquisition is...
the present value of the cash. Should be included in W3. A payable must also be recognised. Discount on payable unwound eah year to increase payable to ultimate amount.
344
Consideration of deferred shares for acquisition should be shown (and FV?)...
in a separate line in equity called "shares to be issued". Fair value is their market value on the date of acquisition.
345
For contingent cash as consideration (cash if certain conditions are met)...
Shown as a provision and included in good will calculation. Made up of element of probability and discounting.
346
If there are contingent liabilities with values that change over the years and you want to work out goodwill...
Work out goodwill with the current value of the contingent liability as consideration, then in end of year reports include this but also a current liability with the year end value of contingent and in the SPL the additional you need to add to make it up to this. In fllowing years keep the goodwill the same but in SPL you include what you have to add to keep up with contingent liability.
347
If professional fees and similar incremental costs are incurred directly in making an acquisition, the double entry requirement is...
Dr SPL expense, Cr Cash. Must recognised in period they are incurred.
348
If P issues shares to buy a subsidiary and incures share isue costs, these...
are treated as a reduction to the share premium account, not as an expense: Dr Share Premium, Cr Cash
349
For consolidated Income statement. W1 is ...
The percentage ownership bubble. Circle shows control (perhaps also include the number of months of ownership x/12).
350
For consolidated Income statement. W2 is ...
Table: column for parent, subsidiary pro rata, adjustment and total. Then rows are revenue, cost of sales, operating expenses, finance costs, tax. Use whole page, leave lines. Adjustment column sums to 0.
351
For consolidated Income statement. W3 is ...
This comes from subsidiary totals in W2 working. W3 is NCI. Do NCI% x S's profit after tax (from W2). This goes into the end of consolidated income as "attributable to S".
352
In intracompany income statements, if there is a profit in inventory movement and you are doing W2...
Dr sellers retained earnings, Cr inventory. Put a PURP row and deduct it directly from the P or S column increasing cost of sales. Single entry.
353
If S pays P a dividend then in the group income statement..
It needs to be removed. Separate row "Dividend from S". Single entry.
354
Accounting for intra-group transfers of NCA in income statement...
PURP calculated (difference in CA value) and added to expense line in which depreciation is charged. Single entry. CSPL only interested in impact in profit for the yeat. If transfer was from earlier year, depreciation only adjusted for this year.
355
When doing the depreciation in a NCA intracompany transfer do...
The NCA purp (deduct) change in value when sold and what carrying amoung would be now. Also add depreciation adjustment row, this is the difference between the depreciation you would have done this year on value and what you should have done on the actual carrying amount.
356
Interest or management charges payable in SPL of subsidiary and interest or management receivable in parent company...
should be cancelled out. Double entry made in adjustments column of W2.
357
For impairment charges in CSPL...
This will usually be a single entry in P's operating expenses. If goodwill is calculated on fair value method though NCI's share of profit after tax will need to be adjusted for their share of impairment so put it in S column.
358
The CSOE proforma has...
Columns of: Share capital (only parent), retained earnings, total, NCI, Total. and Rows of: b/f, total comprehensive income, Dividends, c/f.
359
The W1 -W3 for CSOE are...
Group structure, Consolidation schedule (parents and subsidiarys), Non-controlling interest calculation.
360
When doing consolidated SPL and the subsidiary issued a dividend...
Remember to deduct the relevant investment income from the parent. Don't count it in SCOE either.
361
An internally generated brand (goodwill) on acquisition by another company...
Can be recognised.
362
On disposal of a subsidiary, in the parents company accounts you must:
disose it seperately on the face of the SPL, it is normally shown after operating profit. Do Proceeds - Cost of shares to get Gain/Loss
363
Recognistion of a disposal of a subsidiary in consolidated accounts (meets criteria of discontinued operation under IFRS 5),
Show nothing in CSFP, Show it in Profit/Loss from discontinued operations in CSPL, Show "eliminated on disposal" row in CSOE to remove non-controlling interest.
364
The two numbers to be included in the line "Profit or loss from discontinued operations" on releasing a subsidiary are:
100% of the subsidiary's results up to the date of disposal (pro rata). Gain or loss on disposal.
365
An associate is... (Definition in IAS...)
(IAS 28) an entity over which the investor has significant influence, power to partiipate in decisions. (Not control). e.g. 20-50% of shares. Could appoint directors.
366
A subsidiary is...
Something you have control over (50% plus of shares)
367
A joint arrangement is... (Definition in IFRS...)
(IFRS 11) something you will have joint control over with other venturers. Important decisions need joint consent.
368
A joint operation is...
Joint control and rights to assets and obligatios for liabilities of joint arrangement. Not done through structured through a separate entity. Likely not a separate set of accounts.
369
In a joint venture...
You would set up a seperate entity. Per IAS28 treatment of joint ventures and associates are accounted for in the same way.
370
If an investor has significant influence but not joint control...
He is an associate but it will be accounted for in the same way.
371
In the financial statement, associates are represented as...
a non-current asset investment. Change in Net assets. Calculated as: Original cost + P's % if A's post acquisition assets - 100% of any cumulative impairment to date.
372
For associates and joint ventures there is no...
Goodwill or NCI.
373
Investment in associate is valued at...
Cost of investment + P% of A's post acquisition net assets - P% of fair value depreciation - impairment losses to date.
374
Dividends from an associate in the CSPL...
are not counted. Just show group share of associate's profit after tax less any impairment. This comes after "Investment income and Interest payable"
375
Sales between group companies and associates...
are not eliminated - stay in consolidated figures. But our share of PURP must be adjusted for. (For S take whole thing, A is just share).
376
If there is PURP in sales from P to A
Dr Group retained earnings, Cr Investment in associate. Add P's share of unrealised profit to cost of sales.
377
If there is PURP in sales from A to P
Dr Group retained earnings, Cr Group inventory. Deduct P's share of unrealised profit from share of profit of associate.
378
On disposal, the group profit/loss is...
Proceeds - carrying amount of goodwill at disposal - carrying amont of S's net assets at disposal + NCI at disposal (effecitvely removing our assets to our SFP)
379
On disposal of subsidiary. W8 is carrying amount of net assets at disposal...
Net assets b/f + profit or loss for year up to disposal - dividends paid prior to disposal.
380
On disposal of Subsidiary, in the CSOE you must...
add an extra line "eliminated on disposal". Calculated as NCI% x Subsidiary's net assets at disposal.
381
When paying finance leases in cashflow...
Split up repayment of interest into operating activities and repayment of capital into finance activities. Find out how much is paid out. Deduct interest paid, result is payment of finance lease liability.
382
In consolidated cashflows... the cash flow between the associate or joint ventures and third parties are...
irrelevant. Group share of profit of the associate or joint venture must be deducted in reconcilliation of profit before tax to cash from operations.
383
In consolidated cashflows, dividends received from associate or joint venture must be disclosed as ...
seprate cash flow classified s "Cash flows from investing activities".
384
Dividends from joint ventures (in consolidated cashflow questions) can be calculated...
With a T table. b/f investments in joint ventures and share of J.V. profit on debit. Dividend received and c/f J.V. on right.
385
If a parent sold a subsidiary during the year, then in the consolidated cash flows...
Show net proceeds from disposal of subsidiary in Cash flows from investing activities. (Price sold for - cash balance).
386
In consolidated cashflow, if paying with shares...
remember to deduct these from the increase in ordinary share capital.
387
With preference shares do you get voting rights?
No
388
If bonds are issued and redeemable at par or convertible into shares... how do you work out the equity element?
Work out the present value of all cash someone would redeem from the bonds. The difference between the total value of this and the total value of the bonds is the equity element.
389
Profit after tax of a group with subsidiarys and associates can be computed by...
All of P profit, P% of S profit, less goodwill impairment of S, P% of A proft, less goodwill impairment of A.
390
On disposal of a subsidiary, to work out profit do..
Proceeds of sale, less controlling interest net asets, less carrying value of good will.
391
When workng amount to appear as a deduction in the NCI column on disposal.
Work out total assets and profit up to this point, then take NCI portion of this.
392
To work out the outflow of cash due to trade payables when a subsidiary is acquired...
Do a T table. b/f the trade payables at the beginning, add the amount brought in with the subsidiary, then deduc the c/f trade payables.
393
To work out cash paid to non-controlling interests do...
T-table. On right : b/f NCI assets, NCI dividends payable, Profit for year. On left: Dividends paid (balancing), c/f NCI asset, c/f NCI dividends payable.
394
To work out percentage mark up with cost of sales and revenue...
Do revenue/cost of sales.
395
If an item is being sold intragroup ...
Find out how much it would be on depreciation, and then how much it is. Dr retained earnings of seller and Cr PPE of receiver.
396
To work out profit before tax of a company and its associate:
Do gross profit less admin less distribution as normal and then add the P% profit from S.
397
To find out the group equity...
Take the ordinary share capital and retained earnings of the parent. Then the parent portion of the retained earnings and revaluation surplus etc of subsidiary. Less goodwill impairment.
398
Gain on purchase of a subsidiary is recognised...
In the SPL (not in goodwill)
399
Some things to remember when doing group retained earnings...
Include PURP, Gain on bargain purchase...
400
To work amount additions to PPE that are under finance lease with a T table:
Do total lease on CR b/f then on Dr do c/f end lease and also the rental payment made (deduct interest - only cash amount)
401
If working out the amount to include in CPL in regards to an associate do...
Your share of their profit for the year less impairment.
402
Finding the value of an investment in an associate in the CSFP would be...
The cost paid plus your share of the increase in net assets.
403
Remeber when calulating the investment in joint venture and if there was an increase in the fair value of PPE...
Include the parents shar of the fair value depreciation amount.
404
The double entry for PURP is...
Dr Cost of sales of seller, Cr Inventory in consolidate SFP.
405
When fixing depreciation due to selling with a group.
Add the change in depreciation to the seller? Going to ask Jason
406
The associate balancing works on the CSFP as...
Share of retained earnings and impairment goes in both the retained earnings and "Investment in associate". The consideratipn pays just moves from assets to "Investment in associate" too.
407
The subsidiary balancing works on the CSFP as...
The amount you paid for goodwill comes from your assets and goes into "goodwill". You acquire all their assets and all their liabilities. Then you just need all their equity to balance. This is comprised of NCI in equity, and your share of retained earnings so far, then the negative share of their business you have in goodwill calculation.
408
To do CSPL with a subsidiary...
Do a new column with the fraction of the year that belongs to you. Your profit will then be your original profit and all of theres. But underneath say how much profit is from non-controlling interest.
409
To do the CSCOE
Include the share capital, include the profit attributable to you from the subsidiary. Your portion of transfering between reserves. Add a NCI column.
410
If you are doing a CSPL with an associate...
Include their profit in "Share of profit of associates" after COS and before PBT.
411
How does impairment affect retained earnings?
Remove it.
412
Which dividends paid out would you include in your retained earnings calculations.
Only the ones the parent has paid out.
413
When doing a disposal of subsidiary in CSPL, remember to:
Do profit from tax (ignore sales proceeds) etc for continued operations. Profit from discontinued: Profit made in year, the proceeds less total assets lost plus NCI share.
414
When doing retained earnings in CSCOE and there is a disposal, the b/f amount is...
Your retained earnings and your share of theirs to date less goodwill impairment.
415
When doing CSOE and there is a disposal, when it comes the retained earnings section...
Add the profit attributable to parents. Don't do anything in the "eliminated on disposal of subsidiary" row - this is only used in NCI. You have already been accounted for in the profit.
416
Dividends recieved from joint ventures in Ccash flows...
Should be counted, put it in investing activities.
417
In consolidated cash flows remember to do (in...) dividends...
In financing activities: dividends paid to non-controling interests.
418
When doing consolidated cash flows, "Acquisition of subsidiary net of cash acquired"...
Goes in investing activities as a negative. It is equal to the net assets of subsidiary less the cash they have.
419
When doing CSFP and the acquired company has goodwill in intangibles that is not recognised as an asset...
Deduct it from group intangibles at the acquired price and added to "Goodwill" at true price. Add share to retained earnings and NCI.
420
Fair value adjustment on land will be included in CSFP in...
Goodwill deduction - not retained earnings addition.
421
If a contingent liability is recognised in CSFP this will appear in...
Goodwill.
422
In the CSPL, goodwill impairment is shown...
Under operating costs.
423
If P has acquired loan stock in S. Then in the CSPL...
Your share of payments from the loan stock should be deducted from the finance cost and investment income.
424
The share capital you put in Ordinary share capital in CSOE is...
Only the parent ordinary shares. Put preference shares in another column.
425
If there are dividend payments for ordinary and preference shares in the CSPL...
Put them in different rows.
426
If you charge PURP to the subsidiary in CSFP, put it in...
The W2.
427
If a subsidiary is being disposed of in CSPL then (in terms of it's revenues etc)...
Don't combine them, only the ones present at year end. Just put
428
When working out profit on disposal of subsidiary...
Do sale proceeds less carrying amount of goodwill and net assets (your share). Remember to subtract dividend paid out if needed and remember to add any profit you have made in that year also. (It's kind of there twice - once as profit for year then subtracted to work out profit from disposal).
429
If doing the CSCOE and there is an addition or disposal then...
In the NCI column remember to do added on acquisition and eliminted on disposal. Don't put an entry for this row in retained earnings though. It's taken care of in total comprehensive income for the year.
430
The cashflow from operating activities is...
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
431
If the incoming subsidiary has income tax to pay in the C Cashflows...
Include it in your tax paid calculation!
432
In C Cashflows. In the Cashflows from investing, if you have acquired a subsidiary with cash...
Do "Acquisition of subsidiary net of cash". This is the cash you have acquired with them less the cash you have paid out.
433
If you are doing the PPE T Table in consolidated cashflows. The Finance lease acquired goes.... and remember to include (subsidiary).
On the debit. And include subsidiary receipts.
434
When doing consolidated cash flows and you are working out Dividends received from associates in investing activities do...
b/f of investment in associates on Dr, then add share of profit in associates on Dr. Then on Cr the balancing figure with the c/f investment in associates.
435
When doing proceeds from issue of ordinary shares in C Cashflows this goes in... and is...
Cash from financing activities. T table with b/f on Cr of total shares at beginning, then non-cash consideration for acquisition of subsidiary (value in pounds) and c/f on Dr.
436
To do the payment under finance lease in C cashflows, this goes in .... and is...
Cash from financing activities, and is a T tablewith b/f on Cr of Curent and Long-term payments, and also new lease commitments, then on Cr the balance and c/f of current and long term payments.
437
When doing the dividends paid to non-controlling interest in a c cashflow do... (and there is a subsidiary)
T table with b/f on Cr of NCi at start and their share of profits and what they gain on acquisition. Then n Dr do balancing dividends paid and c/f of their interest.
438
How does IAS2 on inventories lie close with the Accruals basis of accounting?
When benefits of inventory do not arise until subsequent period the related costs are carried forward by a recognition of year-end inventories.
439
How does IAS2 on inventories lie close with the going concern assuption?
Recognising closing inventories as assets. If no more trading then inventory would have to be written off as expenditure.
440
What is a good method for measuring remaining clay in inventory?
Weighted average cost.
441
If there is a person disputing a contract heavily in SPL...
Deduct the full income amount and only include the recoverable costs.
442
Amortisation in expenses in SPL will go in...
Admin expenses.
443
Loss caused by change in foreign exchange rate in SPL and SFP goes into...
The trade payables and also Admin expenses.
444
An extra thing you might want to do with regards to profit from operations in SPL is...
Write a note of where it came from.
445
When you see shares in the TB and you need to put them in the scoe.
Make sure you put them in the righ time period!
446
When doing finance lease liabilities, what things should go into the SPL and SFP each year?
Current and non current liabilities, only the interest, not the actual money out.
447
Substance over form should be applied to all accounting aras in accordance with...
IASB Conceptual framework. (LIke when an asset is sold to be bought back later - like a loan, or when a sale of goods and services is reconised as two sales.).
448
Information is relevant if...
It can affect the economic decisions of its users.
449
To be a faithful representation something must be...
Complete, neutral and free from error.
450
IAS ___ Says ____ should be included in recognition of PPE.
16. Cost including purchase price and attributable costs in construction, initial estimate of unavoidable dismantling costs.
451
IAS ____ says borrowing costs form part of the asset cost. And any investment income...?
23. Investment income from the residue should be deducted from cost.
452
If you are going to hold property at the revaluation model and this increases the value...
The gain should be recognised in "other comprehensive income" and held in the revaluation surplus. This is then transferred to the retained earnings yearly to cover extra acc. dep. charges.
453
The only difference in terms of recording property under IFRS and UK GAAP are that...
In UK GAAP we would report under FRS 102 and could choose not to capitalise borrowing costs, reducing profit.
454
If a company you are acquiring as a subsidiary has good will they have in a sole trader... then when you do the CSFP.
You must deduct the value of the good will for the relevant period in your W2.
455
If there is a contingent liability (at acquisition and reporting period) in a subsidiary then in your CSFP you must...
deduct it in the W2.
456
If there is PURP from buying from an associate then in the CSFP you should...
Deduct your associate fraction of that PURP from your retained earnings and group inventory.
457
The two ways of measuring goodwill and NCI.
Proportionally as you are used to... or at fair value method (includes some kind of goodwill for NCI). Instead of working out NCI percentage use the given fair value. Use this in also working out your goodwill calculation (add NCI then deduct full amount). Consistent with the rest of IFRS 3.
458
If you're doing cashflows and there is a PPE disposal and it says the revaluation surplus is solely for that PPE...
then transfer it in retianed earnings when working out dividends paid.
459
If you sell something with interest free credit what do you do to revenue?
Deduct the extra from it.
460
What is the purpose of IFRS 7?
Published because existing standards needed to be improved. Transparency of information to assess risks. Provide disclosure so users can evaluate risks.
461
What are the enhancing characteristics in the IASB conceptual framework?
Comparability, understandabilitu verifiability, timeliness.
462
Can you include general overheads when capitalising in construction?
No
463
If there is a fair value adjustment to make on the Subsidiary's assets then depreciation...
changes should be worked out and put in their column in the CSPL workings.
464
If the parent has sold to the subsidiary an asset and the change in value gives a change in depreciation...
Put the change of depreciation in the parents cost of sales in the CSPL. Also deduct it from their retained earnings in the workings.
465
If an associate has sold to a parent and there is PURP...
Deduct the parent share of the PURP from their share of associates profit.
466
In a big CSPL, to find the profits attributable to parent...
Do full profit and then deduct profit attributable to NCI.
467
Share of profit from associate comes...
After investment income and before PBT
468
Remember to put deferred income into...
Current and non Current liabilities.
469
Revenue is recorded when...
The risks and rewards are transferred to the buyer.
470
If a customer list is bought from a failing client it should be held at...
Cost. And then depreciated.
471
If a customer list is valued higher than the current cost valued at canit be revalued?
No as there isn't an active market.
472
How do you hold preference shares?
As the substance. So part equity and part liability. Dividends out each year are recognsed as an expense in the SPL.
473
Internally generatred goodwill cannot be recognised as intangile asset because...
Cannot be separated form cost of business as a whole. But if it is on acquisition of a subsidiary IAS 38 assumes the intangible asset would normally be recognised separately, so do this.
474
A bonus issue is good for shareholders because...
They get more shares. And although it dilutes the EPS it is a sign the directors think the business will improve.
475
Under IFRS how might an entity account for government grants?
Either as deferred income or by deducting the grant from the carrying amount.
476
Under FRS 102 how must a company use a government grant?
Deferred income.
477
If you are working out cash from operations in a group and there ar eprofits to NCI you must start your calculation with...
The normal PBT figure.
478
Remember, if you are doing an interest expense in the Consolidated cashflows and there is an accrued interest elsewhere...
Include it in yout T table to work out your interest paid. But in the Reconcilliation of PBT to Cash ops just use finance cost.
479
When there is an associate and you are doing consolidated cashflows, remember to include...
share of profits from associate (deduct) in the reconcilliation.
480
Things to include in intangible T balance when doing amortisation calculation T table...
Additions, intangibles of new subsidiary, development or increase in fair value,
481
Where would purchase of intangibles go in Cashflows?
Investing activities
482
Where would acquisition of subsidiary net of cash acquired go in Cashflows?
Investing activities.
483
How do you work out dividends received from associates and where does it go in Cashflows?
T table of investment in associates. brought forward and share of profits in associate in Dr, Carry forward and balance (dividend) on right.
484
When working out dividends paid to NCI, and there is an acquisition of a sub, what must you remember...
to include the NCI fraction of the acquisition in the T calculation.
485
What is a statement of other comprehensive income?
Simple as profit for year, other comprehensive income (like revaluation on land), Total comprehensive income for the year.
486
If there's loads of revaluations and stuff and you're trying to adjust the price of PPE...
It might be easier to do it from scratch.
487
If there has been a revaluation transfer remember (depreciation)...
To do a revaluation reserve transfer.
488
If you are adjustingrevenue and there is a service contract where 5000 has been received from the customer and 11000 is recoverable and a complete estimate of future cost of sales is unreliable...
Do Revenue - 11000 + 5000. Put the remaining 6000 in trade and other receivables?
489
Depreciation charge can commonly go in...
Admin expenses.
490
If a subsidiary you are acquiring has goodwill in a sole trader…
Deduct it when doing your CSFP
491
If a subsidiary increases its revaluation surplus…
Increase yours by your share of it (kind of taken into account in goodwill calculation)
492
When there is a revaluation surplus in the subsidiary…
don't include it in your movement to work out retained earnings. Movement is only stuff above this.
493
Basic SPL is…
Revenue, cost of sales, admin, dist, profit from operations, finance cost, investment income, PBT, tax, PAT.
494
Difference between Associate and Subsidiary in CSFP…
For the sub only move share capital and retained earnings over at acquisition onto goodwill. For ass do your share of progress in investment in ass and retained earnings.
495
Basic SFP…
NCA: PPE, Investments. CA: Inventory, receivable, cash. Equity: Share capital, share premium, retained earnings, rev. reserves. Treasury shares (-) Irr pref shares. NCL: Loan, def income, red pref shares, dismantling provisions, CL: Payables, overdraft, s-t borrowings, tax payable, def income.
496
If there's an impairment in the subsidiary in SFP…
deduct the full amount from goodwill and deduct from retained earnings and NCI in the relevant proportions.
497
If there is an impairment in associate in SFP…
deduct the full amount from retained earnings and investment in associate.
498
When does an entity become a subsidiary…
When control is acquired (not when consideration is transferred).
499
Remember, when working out operating lease expense, after this year…
the rest goes in as a liability.
500
Journal entries for an acquisition of a subsidiary may include:
Dr Goodwill and net assets. Cr NCI, equity, shares to be issued, liabilities (deferred consideration), NCA (investments).
501
In a group, distributable profits are…
Measured separately for group members. Accumulated realised profits - accumulated realised losses.
502
Types of depreciation to include:
Depreciation for still held assets, additions, disposals, assets held for sale, revalued assets.
503
IDE expense goes in…
Admin expenses
504
Marketing costs go in…
Admin or distribution costs. (Not cost of sales)
505
If there are returns in the SPL…
Deduct this from Revenue.
506
In doing convertible preference shares the equity section in double entries goes in as…
Cr Shares to be issued.
507
Technique for explain style questions in FAR…
Brief description of issue, explain issues on day transaction occurs, subsequent: describe entries made between initial date and year end. Year end situation.
508
What IAS lets you attribute costs to bring asset to current position.
IAS 16
509
In the explain style questions, what shouldn't you do (unless the ask for it)…
Double entries - they don't like them here.
510
In CSFP, if there is a fair value increase in an associate item…
Don't include it in your movement workings… just put it in the retained earnings and investment in associate. (Just your share).
511
Remember, if there is profit on sale and finance leaseback…
Recognise the profit over the lease term. Income and deferred income. Non current asset also derecognised and leased asset is recognised.
512
"Excess profit" is…
The amount of profit made over the fair value.
513
"Normal profit" is…
The difference between C.V and F.V.
514
Will testing costs be capitalised in a new intangible asset?
Yes
515
Will manufacturing supervisors time to install be included in price of new intangible?
Yes
516
Can you capitalise a person's knowledge (e.g. staff training).
No
517
Can only use the revaluation model if…
You expect it to be able to determine F.V. and you do all in the class of asset.
518
On revaluation of an asset, if revalued upwards, the double entries are…
Cr Revaluation reserve, Dr Cost and Dr Acc dep to remove accumulated depreciation and increase cost.
519
When revaluing downwards, you only double entry to the PandL if…
You don't have enough related to that asset in the Rev reserve.
520
If downwards revaluation and there has already been depreciation…
Don't add back on the depreciation… it is already helping you bring the cost down.
521
If the carrying value is larger than the recoverable amount then…
Do a revaluation. (Recoverable amount is higher of fair value less costs to sell and value in usel)
522
When transferring from Rev reserve to compensate for higher depreciation, if the UEL has changed…
Calculate the difference in depreciation but remember to use the NEW UEL to calculate the old depreciation cost. (Not just the old depreciation value).
523
When selling a revalued asset…
Proceeds less carrying value goes into the PandL then Dr Revaluation reserve and Cr Retained earnings of what is left it rev res.
524
Deferred cash or contingent cash (double entry)
Cr Provision Dr Goodwill (I think)
525
Deferred shares or contingent shares, double entry
Cr Shares to be issued Dr Goodwill (I think)
526
The difference between the proportional method and the fair value method in working out goodwill…
The proportional method leaves you with your portion of total goodwill, the FV method leaves you with 100% of company good will. (Because the NCI fair value includes goodwill).
527
The difference in doing impairments in the proportional and fair value method…
In the proportional method the impairment given is just for your goodwill (also Dr Retained earnings). In F.V. method the impairment is for both you and NCI so put your fraction in retained earnings and the rest in NCI.
528
To work out NCI in the Proportional method…
Net assets x NCI percentage
529
To work out NCI in fair value method…
Fair value of NCI at acquisition plus NCI percentage of change in net assets post acquisition (W2) less NCI share of impairment.
530
Does fair value uplift or downlift in a subsidiary go into the working 2?
Yes man…. And then change value of PPE in CSFP. Same with FV depreciation or inventory change.
531
Where do you put PURP in CSFP with a subsidiary?
W2 and group inventory or PPE.
532
Intangible assets you are allowed to keep and don't have to subtract in W2….
Brands that they have internally generated but you can now attribute a fair value to it, e.g. Cadbury have no value for brand, but Kraft paid for it. But you can't have goodwill they have from sole trader.
533
Contingent liabilities in a subsidiary in CSFP…
Have to be deducted in W2. Provision created in SFP.
534
Things that would go in retained earnings in CSFP:
100% of Parent RE, P% of change in sub post acquisition, P% of associate profits. Less PURP (INV/NCA) Parent subsidiary, less impairments.
535
The revaluation surplus workings in CSFP is…
100% of parent Revaluation reserve plus P% of post acquisition change in revaluation reserve.
536
The investment in associate in CSFP is worked out as…
Original cost plus P% of post acquisition change in retained earnings less impairments less PURP (associate of joint venture).
537
Do dividends received from subsidiary or associate affect CSFP?
No
538
Remember if there is a FV uplift on acquisition of a subsidiary what should you include in PPE?…
Include the uplift and depreciation change in PPE.
539
Where does fair value depreciation on a fair value uplift in subsidiary PPE go?
In the W2 workings under "current" column and also in the consolidation of PPE. Not in the Goodwill working.
540
Do discontinued operations go in the CSPL
No - deal with them separately.
541
If you've only had the subsidiary for a number of months, then in the CSPL…
Only take that proportion in the W2 consolidation schedule workings.
542
If there is dividend from subsidiary (or associate) then in the CSPL workings…
Deduct it in the W2 consolidation schedule under investment income.
543
When the subsidiary or parent have leant money to another, then in the CSPL…
You must deduct the interest from investment income and add it back (reducing) to finance costs. This is in the adjustment column.
544
Where does goodwill impairments for the current year in a subsidiary go in the CSPL workings?
In the W2 consolidation schedule under Admin. (Parent column)
545
Where does fair value depreciation go in the CSPL workings?
In the subsidiary's column under FV depreciation in W2 consolidation schedule.
546
What happens to intragroup management charges in CSPL?
In the adjustment column in the consolidation schedule add it back to admin charges (reducing it) and subtract it from other income.
547
How do you do the Profit attributable to NCI in the CSPL? (W3)
Profit (W2) x NCI% from continuing operations and then the profit from discontinued operations (W4) x NCI%
548
How do you get the profit from discontinued operations in CSPL? (W4)
Profit for the year up to the date of disposal (for the relevant amount of the year - PAT) add it to profit or loss on disposal itself (W5)
549
How do you work out profit or loss on disposal of a subsidiary (W5) in CSPL…
Proceeds + NCI on date of disposal - Goodwill at disposal(W6) - net assets at disposal (W7)
550
How do you work out Goodwill on disposal (W6)
Consideration + NCI at acquisition - 100% Net assets - impairment up to disposal.
551
How do you work out net assets at disposal in CSPL? (W7)
Share capital + share premium + retained earnings b/f + profit up to disposal.
552
W3 in CSPL is…
Profit attributable to NCI
553
W4 in CSPL is…
Profit from discontinued operations
554
What are the W2 - W7 for CSPL
W2 (consolidation schedule), W3 (Profit attributable to NCI), W4 (Profit from discontinued operations), W5 (Profit on disposal), W6 (Goodwill on disposal), W7 (Net assets at disposal)
555
How does Fair value uplift depreciation in subsidiary asset affect CSPL?
Put it into Admin expenses of Subsidiary column in consolidation schedule.
556
Do you include profit on disposal of subsidiary in the consolidation schedule?
No - you would just deduct it out anyway.
557
Columns of CSOE include…
Share capital, share premium, retained earnings, revaluation reserve, total, NCI, total
558
Rows of CSOE may include…
b/f, PY adj, restated b/f, share issue, comprehensive income, dividends paid, NCI added on acquis, removed on disposal, c/f
559
Where does the Fair value uplift go in CSFP?
In your W2. It then effectively goes into the NCI amount and also deducted (fully) in the goodwill calculation and also the change in retained earnings in later workings.#
560
An extra table you might want to draw in CSOE…
A complete list of individual company retained earnings where you can work backwards to get the balancing figure, opening retained earnings at start of the year.
561
What things might be in the Dividends paid T table calculation in Cash flow?
On Cr: b/f, profit for year, revaluation asset now sold, reserves transfer. On Dr: dividend paid and c/f
562
Where does preference share capital go in Cash flows?
Cash from Financing activities.
563
Extra inflows of cash in Ccashflows and not in normal cash flows….
Inflows from investment in associates (T table with balancing figure of dividends received) and share of profit in associates which goes into the Note PBT working.
564
Extra outflows that might happen in Ccashflows and not in normal Cash flows:
Dividends paid to NCI
565
Impact on cash of acquisition or disposal of entity on consolidated cash flows?
Net cash received or paid (what you have paid less the cash they have) goes in investing activities.
566
If there is a disposal of subsidiary, what would you do to edit the Profit from operations figure (note).
Do the inventory, receivables and payables adjustments and also add the PBT from discontinued operations.
567
What must you remove from your profit before you calculate your EPS?
Irredeemable preference dividends. (They will be paid regardless of what happens and before any other dividends are paid). You only want to include earnings that can actually be distributed.
568
What is the bonus fraction (to multiply pre-bonus share totals by)
Amount of shares after / amount of shares before.
569
What is the bonus fraction for a rights issue?
Market value of a share just before issue / theoretical ex rights price.
570
What actually is the TERP (not calculation but reasoning behind it)?
The price you expect the share to settle at immediately after the issue.
571
How would you "restate the prior year EPS?"
Multiply last years EPS by multiplying by inverse bonus fraction (flip it).
572
When calculating earnings per share… what earnings figure do you use out of: Total profit or profit attributable to equity holders of parent
Just use the profit attributable to Equity holders.
573
What is the difference between IFRS and FRS 102 and FRS 101?
FRS 102 and FRS 101 are UK GAAP. IFRS is IASB.
574
What is the difference between IFRS 5 and UK GAAP on presentation of discontinued operations?
In IFRS you show one line of Profit up to disposal and profit on disposal itself totalled together. In UK GAAP have a complete separate discontinued operations column in the SPL.
575
What is the difference between IFRS 5 and UK GAAP on assets held for sale?
In UK GAAP there is no such thing as asset held for sale, you keep it (or take it back) in PPE and depreciate till it is sold.
576
What is the difference between IAS23 and FRS 102 on borrowing costs?
In IAS you must capitalise borrowing costs. In UK GAAP you can choose to either capitalise it or expense the borrowing costs. (May be done to pay less tax).
577
What is the difference between development costs in IASB and IFRS UKGAAP?
Development costs must be capitalised in IASB (intangible asset) but you can choose not to in UKGAAP.
578
What is the difference between IAS 20 and UKGAAP on Capital grants?
In IAS 20 you can choose either the deferred income or the netting off method, in the FRS 102 you can only use the deferred income method.
579
What is the difference between IAS39 and UKGAAP on initial recognition of financial instruments?
In IAS39 the asset is purchase price + transaction costs. Liabilities is cash received - transaction costs. In UKGAAP it is the initial measurement at transaction price, just what you pay.
580
What is the difference between IASB and UKGAAP on goodwill?
On IASB the goodwill isn't amortised but tested, impairment reversals not allowed, gain on bargain purchase (W3 working) recognised in PnL. In UKGAAP amortised over UEL (5 year rebuttal presumption), Impairment reversals allowed, negative GW is allowed and shows separately on SFP.
581
What is the difference between IASB and UKGAAP on acquisition costs?
On IASB the acquisition costs go through PnL as an expense. In UK GAAP you still credit cash but can add it into the value of your consideration.
582
What is the difference between IASB and UKGAAP on NCI recognition?
In IASB it can be fair value or proportionate, in UKGAAP only the proportional amount is allowed.
583
What is the difference between IASB and UKGAAP on Exclusions?
In IASB no exclusions allowed, if you control it you must consolidate it. In UKGAAP you can exclude if you have long term restrictions on the subsidiary control, or if the sub is held only for resale purposes.
584
What is FRS 102 based on essentially?
IFRS for small and medium sized companies.
585
How do you include the profit from discontinued operations into the CSPL?
Do your normal workings in CSPL (including share of profit from ass or JV before PBT. Then after the income tax expense add to get profit from continuing operations and then put your profit from discontinued operations.
586
How do you include your profit from NCI in CSPL?
After working out the profit for year deduct the profit from NCI and use this to find profit attributable to owners of Windermere (this includes profit for period from a discontinued sub).
587
If contingent cash is offered as consideration then what else should be recognised in the FS apart from goodwill and normal things?
A liability for the contingent cash.
588
What should happen at year end to a contingent cash consideration?
Increase it in value according to the interest (unwinding discount), this is a finance cost. Increase it to the next contingent amount or pay it out when needed. The balance of new contingent amount less old contingent amount and finance cost is charged to PnL.
589
Remember, if you are acquiring a subsidiary and they don't recognise their brand... what should you do apart from recognising it as an intangible?
Adjust your goodwill.
590
What is the difference between convertible and redeemable preference shares in their accounting treatment.
Convirtible ones you do the whole table to work out the present values. For redeemable ones you don't, just put the interest payment into finance costs and the payout into cashflows.
591
If the cost model is used but you have to revalue something downwards what should you do with the revaluation surplus?
Trick question, if it's the cost model then there is no revaluation surplus. Charge to PnL.
592
How are iredeemable shares be classed if there is a contractual obligation to pay cash?
Liabilities.
593
Where does PURP go in the consolidation schedule when there's a sale from a subsidiary to parent?
In the Cost of sales of subsidiary.
594
Remember, if you see investment income in the parents SPL and you are doing a CSPL and the Subsidiary has issued dividends...
alarm bells, deduct the dividends they have given you.
595
How is a provision note laid out?
(In rows) The brought forward amount, then any change due to unwinding or profit or loss due to change in provision, then the carried forward amount.
596
What are the four cost bases?
Historical cost (measured at consideration paid), Current cost (cost to acquire asset today), Realisable value (amount if sold in current condition), Present value (present discounted value of future cashflows).
597
What are the advantages and disadvantages of measuring on the hitorical cost model?
No subjectivity, no cost to measure, no manipulation possibilities, doesn't relfect true current value, igores inflation.
598
If a provision is made for returns, where should you deduct the expense...
From Revenue aparrently!
599
Where would be a good place to expense impairment losses?
Cost of sales
600
Where would be a good place to expense a general provision...
Other operating expenditure.
601
When you open up a finance lease, what would you start the b/f at in the main workings table? The MVLP or the asset value?
Asset value - although you hope they are actually similar prices.
602
How do you work out the current liability on the finance lease?
The amount c/f next year less the amount c/f this year.
603
What controls could you put in against people not getting capital orders approved?
Reinstatement, disciplinary action, segregation of duties of those ordering and receiving, regular comparison of expenditure, two directors required to sign.
604
A control for telephone orders being accepted without checking inventory or credit limit?
Reeducate, automated systems, stockout checks to verify when stock was removed, review receivables to credit limits regularly.
605
What are the five enhancing qulitative characteristics?
Understandability, relevance, faithful reresentation, comparability, timeliness. F CURT
606
The Conceptual framework states that the costs of gathering information should not...
exceed the benefits.
607
Where do youput goodwill impairment in an associate in CSPL?
In operating expenditure.
608
Do you deduct the dividends paid to you from an associate when working out investment income?
YES
609
If you are working out the profit on dispisal of a subsidiary to deduct from investment income how would you include it?
Deduct the consideration received for it less the consideration paid... Not the actual profit on disposal.
610
If you have a subsidiary that does a revaluation and has a revaluation account but goup policy is historic, do you deduct it?
No - It is part of their net assets.
611
When there is a gain on bargai purchase what do you do?
Add it to your retained earnings kerching.
612
What is the treatment of NCI in UK GAAP?
Share of net assets only, no choice of measurement. In IFRS use either fair share or fair value valuation.
613
What is the difference between goodwill amortisation on UKGAAP or IFRS?
It is amortised in UKGAAP but impaired in IFRS.
614
If you calculate goodwill and get a negative. What's the different IFRS UKGAAP treatment?
UKGAAP requires recognition as a separate item within goodwill. IFRS requires gain on purchase to be immediately recognised in SPL.
615
When working profit from operations indirectly, what profit figure do you start with?
Profit from continuing operations.
616
What figure do you start with when doing cashflows?
Profit before tax. Remember to add any profit a disposed subsidiary made.
617
When putting profit on disposal in your profit from operations indirectly. It is profit on dipsosal of what?
PPE. Not subsidiary.
618
Where does repayment of finance lease liabilities go in the Cashflow?
In cashflows from financing.
619
Interest paid is...
Finance costs.
620
What is the difference between profit on disposal of a subsidiary in a single entity accounts and in group accounts?
For single entity you do the Money received les money spent on buying it. For a group you have to do the whole thing with NCI and goodwill.
621
How are treasury shares recognised?
Negative equity. When buying back, keep share capital the same but put the amount you buy back into treasury shares.
622
If you buy back 45,000 £1 shares at £1.90 each, how is this recognised?
In treasury shares as negative equity 45000 x 1.90
623
If a provision against faulty goods is in "other expenses"…
You should move it to Cost of Sales - anything related to goods goes here.
624
Accruals basis and how shown in reporting?
Account for when they occur, provisions (present obligation from past event), depreciation, spreading lease rental, revenue from future magazine subscription stuff…
625
Going concern concept and in the statement reporting…
Will continue as a business for 12 months at least, Historical costs not break-up cost. Can dividends be paid?
626
Where is the Non current liability in the FLL table workings?
To the right of the last payment figure.
627
What is the b/f on the FLL?
The lower of b/f and PVMLP (depreciate over lower of UEL and lease term including extra life).
628
If you get the asset at the end of the FLL…
You must use UEL for depreciating.
629
If doing the exchange rates… when should you consider the first purchase?
When the goods are received as this is when the risks and rewards are transferred.
630
If you make a gain on foreign exchange differences where should you credit it?
Other operating income. NOT in cost of sales. Or you could put it in finance costs (a gain is allowed here).
631
If you are revaluing down and there is some money in the rev reserve.
You can only use the money in the rev reserve that relates to that asset in particular.
632
If you are impairing to make something held for sale and you have revaluation surplus, where do you put impairment?
Always cost it to SPL, even if there e is a reval surplus.
633
If a asset is rendered obsolete…
Stop depreciating it. Write off the full value there and then.
634
If there is VAT in Materials used in PPE building…
Deduct it if the company is VAT registered.
635
When you are putting deferred income back into the SPL where do you put it?
As a positive in operating expenses is good.
636
If parent sells to associate, where does the PURP go?
retained earnings of seller and "investment in associate"
637
If associate sells to parent, where does the PURP go?
retained earnings and inventory.
638
Where does the Fair value uplift in subsidiary NCA go?
In the reporting date and acquisition date column of W2. Also add fair value uplift and remove depreciation from PPE. Add depreciation so far to the W2 also.
639
If there is deferred cash in consideration… what do you do with the unwinding?
Deduct it from retained earnings. And then add it to the payables amount in "deferred consideration".
640
If there is a fair value uplift in acquiring subsidiary, where do you put the uplift…
In the PPE of the subsidiary and the retained earnings.
641
If you're going to have more than 3 numbers in your brackets in workings…
Might be better to show it as a separate working.
642
How do you deal with Intragroup interest in a CSPL?
In the adjustment column deduct it from investment income and add it back to finance cost (reducing both of them).
643
Where does fair value uplift depreciation and goodwill impairment go in CSPL?
After finance costs, before investment income.
644
When you are doing consolidate SPL where would you put impairment in associate?
Deduct it from "share of profit from associate" which will go between "Profit from operations" and "profit before tax".
645
Where can you put gain on bargain purchase in CSPL?
As a positive in operating expenses is good.
646
Remember, if in a group CSPL someone has sold PPE to another (price increase), the difference in depreciation…
You add it on (to the COS of the person who sold it - as it is their; decision to recognise it as less) because the buyer is paying too much. (What would it have been if it hadn't happen?)
647
Can the costs to gain a subsidiary be recognised?
Must be expensed in IFRS but included in UK GAAP.
648
Gain on bargain purchase in IFRS and UKGAAP
IN IFRS shown as credit, in UKGAAP shown as negative goodwill.
649
Does retained earnings in the CSCOE get affected by disposals of Subsidiary?
No
650
If there is a fair value increase in a subsidiary PPE, where does the extra depreciation go in the CSPL?
In the Subsidiary column under Opex.
651
When you are doing the profit from discontinued operations, and specifically, the profit to date, what exactly is that figure?
The profit of the subsidiary to date. The whole thing up to disposal for the year. Not just your fraction.
652
What numbers go at the end of the cash flow?
Cash before, cash after, change in cash.
653
What is the profit figure you use at the start of your cash flow note?
Your PBT plus the profit you got from the discontinued operations.
654
Remember when you are working out dividends paid to NCI in Ccashflows. And there is a discontinued operation…
Put the bit that is removed in the T table.
655
What comes with Disingenuous fidel castro?
Good Disingenuous fidel castro (goodwill impairment).
656
Weird: If in convertible shares, 10k is paid out and 5k was added in interest. What happens in cash flows?
5k in cash from operating and 5k in financing. 10k was paid out and 5k of that was to pay interest essentially. If interest paid in advance, it all goes into finance costs.
657
Interest on bank loan for projects can be charged from..
As soon as the project starts, funds received? On first purchase. "As soon as activities are undertaken to start the asset"
658
What is the difference between a joint venture and an associate?
Nothing really except: A joint venture has joint control, an associate you have significant influence in.
659
Explain the treatment of a rights issue.
In effect it combines an issue at full price and a bonus issue, adjustment needed for the bonus element. All shares before issue multiplied by the fraction.
660
Out of these, whach cannot be included in absorbtion costs for inventory held... Maintenance of fatory, Salaries of factory personnel, Depreciation of manufacturing equipment, storage costs of finished goods, advertising costs
Storage costs of finished goods, advertising costs. Only attributable costs.
661
What do you do before an operating leaseback if the fair value is below the carrying amount?
Impairment.
662
In the construction of an asset, how do you treat administration expenses and overheads related to this construction?
you CAN NOT capitalise. it is over operating expenses
663
Can you begin capitalising when you obtain planning permission?
NO, only when expenditure is incurred on the asset and/or borrowing cost are inccured
664
IAS 36 impairment of assets?
Support the prudence principle. Has qualitative characteristics (Comparability, predictory and confirmatory, relevance) Explains when it may be impair and assets, by how much, and how it should be accounted for.
665
What are the implications of reclassifying as asset held for sale, from the view of management and ethics?
Depn stops when it is held for sale, so profits will be higher. ethical integrity of management should be considered
666
faitful representation
free from erorr or bias, complete and portay events in a way that reflects reality
667
what are the five type of intangible assets (ITA) that can be acquired through business combination
1. Marketing-related ITA- trademarks
2. Customer-related ITA- Customer list
3. Artistic ITA- motion picture films
4. contract based ITA - franchise agreements
5. technology ITA- computer software
668
What are the ethical issues with sale and leaseback?
Sale and leaseback transations may be manipulated to enhance asset values, reduce gearing, and improve/reduce profits depending the circumstances
669
If you use a non current asset in the development process what is the treatment?
The depreciation of that noncurrent asset can be capitalised in as part of the intangible asset (ITA). But this is only during the period of development. if there was some depreciation before or after, that should be charged normally to P&L
670
Can you capitalise customer list as intangible asset?
yes
671
which accouting standards deal with financial instruments?
IAs 32 Financial Instruments presentation, IAs39 Financial instrument recognition and measurement and IFRS 7 financial instrument disclosure
672
How do you initially value financial assets?
cash paid PLUS any transaction costs
673
How to you initially value Financial Liabilities?
Net proceeds received. so you need to deduct transaction costs
674
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
675
if you have a financial asset, the double entry for the amortisation figure is? (think about the table)
Dr Asset X, Cr Investment Income X
Remember the asset is becoming of higher value because you ar charging interest on it
676
if you have a financial asset, what is the doubel entry for the cash from the table?
Dr Cash (you are receiving the cash) Cr asset (they are paying you, so you need to reduce the receivable)
