Financial Statements Ratios, IAS & IFRS

Question 1

IAS 1

Answer 1

Requirements For Company Financial Statements
SPL + other comprehensive income
SFP
Statement of changes in equity
Statement of cashflows
Notes to the accounts

Question 2

IAS 2

Answer 2

Inventories
Inventory is valued at the lower of cost or net realisable value
Cannot use LIFO

Question 3

IAS 36

Answer 3

Impairment Of Assets
Compare carrying amount against the greater of
Fair selling value
Value in use

Dr - Impairment expense
Cr - Asset

Question 4

IAS 16

Answer 4

Property, Plant & Equipment
Cost = purchase price + directly attributable costs
NOT TRAINING
Land is not depreciated

Question 5

IFRS 16

Answer 5

Leases
Long term rental, right to use asset but does not belong to us.

1) Account for asset (deposit & liability)
Dr - Asset
Cr - Lease Liability / Bank (deposit)

2) Work out depreciation policy over the right of use period

3) Unwind the liability - account for payments & interest each year
Payment
Dr - Lease Liability
Cr - Bank
Interest
Dr - Finance Costs
Cr - Lease Liability

4) Split the liability into current and non current
Paying In Advance
CL = Payment
NCL = Difference

Paying In Arrears
CL = Difference
NCL = Next Years Balance

Question 6

Gross Profit Margin

Answer 6

Gross Profit / Revenue X 100
= %

For every £1 of sales, the % converted to gross profit
ONLY SALES & COST OF SALES

Question 7

Operating Profit Margin

Answer 7

Operating Profit / Revenue X 100
= %

For every £1 of sales, the % converted to operating profit
DISTRIBUTION & ADMIN EXPENSES

Question 8

Net Profit Margin

Answer 8

Net Profit / Revenue X 100
= %

For every £1 of sales, the % converted to net profit
TAX

Question 9

Specified Expense Ratio

Answer 9

Specified Expense / Revenue X 100
=%

For every £1 of sales, the % spent on a specific expense

Question 10

Return On Capital Employed

Answer 10

Profit From Operations / Capital Employed X 100
= %

Shows profit made from long term funding / investment

Capital Employed = Total Equity + NCL
OR
Total Assets - CL

Question 11

Return On Net Assets OR Shareholders Funds

Answer 11

Net Profit / Equity X 100
= %

Showing the profit made (goes to retained earnings) from equity only

Question 12

Asset Turnover

Answer 12

Revenue / Capital Employed
= no of times

The amount of times the long term funding is converted to revenue

Capital Employed = Total Equity + NCL
OR
Total Assets - CL

Question 13

Non Current Asset Turnover

Answer 13

Revenue / NBV of Non Current Assets

Shows how much revenue is generated from assets

Question 14

Total Asset Turnover

Answer 14

Revenue / Total Assets

Shows how much revenue is generated from assets

Question 15

Current Ratio

Answer 15

Current Assets / Current Liabilities
= X:1

How the many times the Current Assets would cover Current Liabilities
Ideal 2:1
Measure of liquidity

Question 16

Quick Ratio (Acid Test)

Answer 16

Current Assets - Inventory / Current Liabilities
= X:1

How the many times the Current Assets, without inventory, would cover Current Liabilities
Inventory is the least liquid / slowest moving asset
Ideal 1:1
Measure of liquidity

Question 17

Inventory Holding Period (Inventory Days)

Answer 17

Closing Inventory / Cost of Sales X 365
= X Days

Average days inventory is held in the stock room

Question 18

Inventory Turnover

Answer 18

Cost of Sales / Closing Inventory

How many times the stock room has been refilled

Question 19

Trade Receivables Collection Period (Receivable Days)

Answer 19

Trade Receivables / Credit Sales X 365
= X days

The average time to collect money from credit customers
Puts pressure on credit control

Question 20

Trade Payables Collection Period (Payable Days)

Answer 20

Trade Payables / Cost of Sales X 365
= X days

Average time to pay credit suppliers

Question 21

Working Capital Cycle

Answer 21

Inventory Days + Receivable Days - Payable Days

The days the company has to fund itself

Question 22

Interest Cover

Answer 22

Profit From Operations / Finance Costs

The amount of times the profit can cover the finance costs

Question 23

Gearing Ratio

Answer 23

Non Current Liabilities / Equity + Non Current Liabilities X 100
= %

The % of the company that is funded by debt
High gearing = High risk

Question 24

IAS 38

Answer 24

Intangible Assets

Question 25

IAS 12

Answer 25

Income Taxes
Accrue for tax paid using accruals

Question 26

IFRS 15

Answer 26

Revenue From Contracts With Customers

COPAR
1. Contract
2. Obligations
3. Price
4. Allocate price into obligations
5. Recognise revenue when obligation is satisfied

Question 27

IAS 37

Answer 27

Provisions, Contingent Liabilities & Contingent Assets

Question 28

IAS 10

Answer 28

Events After The Reporting Period

Events which occur between the SFP date and the date accounts are sent to companies house (9 months + 1 day)