Formulas

Question 1

What is the formula for straight line depreciation?

Answer 1

(Initial cost - Residual value) ÷ estimated useful life of an asset

Question 2

What is the formula for reducing balance depreciation?

Answer 2

Depreciation rate x NBV at start of the year

Question 3

What is the formula for Cost of Sales?

Answer 3

Starting inventory + purchases - closing inventory = COS

Question 4

What is the formula for a balance sheet?

Answer 4

Assets = Liabilities + Equity

Question 5

What is the formula for Net Income?

Answer 5

Net income = Income - Expenses

Question 6

What is the formula for Gain/Loss on Disposal?

Answer 6

Gain/loss on disposal = Disposal proceeds - NBV

Question 7

What is the formula for end retained earnings?

Answer 7

RE (end) = RE (beg) + Net profit (IS) - Dividends paid

Question 8

What is the formula for taxable profit?

Answer 8

Taxable profit = Profit before tax + (Non-deductible expense) - (Non-taxable income) - Capital allowances

Question 9

How to calculate income tax for the year?

Answer 9

Taxable profit x corporate tax rate (%)

Question 10

How to calculate current year’s tax expense?

Answer 10

Current year’s tax expense = Current year’s tax estimate +/- Prior year under/(over) provision

Question 11

How to calculate interest paid (cash outflow)?

Answer 11

Interest paid (cash outflow) = Opening interest liability (interest payable, SOFP) + Income statement charge (i.e. interest expense) - Closing interest liability (interest payable, SOFP)

Question 12

How to calculate tax paid ( cash outflow)?

Answer 12

Tax paid (cash outflow) = Opening tax liability (tax payable, SOFP) + Income Statement charge (i.e. tax expense) - Closing tax liability (interest payable, SOFP)

Question 13

How to calculate Return On Capital Employed (ROCE)?

Answer 13

Profit before interest and tax ÷ Average capital employed (which is calculated by share capital + reserves + non-current liabilities OR total assets - current liabilities) x 100%

Question 14

How to calculate Return On Equity (ROE)?

Answer 14

Profit for the year
(less any preference dividend) ÷ (Ordinary share capital + Reserves)
x
100%

Question 15

How to calculate gross profit margin?

Answer 15

(Gross profit ÷ Sales revenue) x 100%

Question 16

How to calculate operating profit margin?

Answer 16

Operating profit margin = (Sales ÷ revenue) x 100%

Question 17

How to calculate mark up?

Answer 17

Mark-up = Gross profit ÷ COS

Question 18

How to calculate margin?

Answer 18

Margin = Gross profit ÷ Sales

Question 19

How to calculate inventory days?

Answer 19

Inventory days = (Average inventories held ÷ COS) x 365

Question 20

How to calculate receivable days?

Answer 20

Receivable days = (Average trade receivables ÷ credit sales) x 365

Question 21

How to calculate payable days?

Answer 21

Payable days = (Average trade payables ÷ Credit purchases(when purchases are not known, COS is used)) X 365

Question 22

How to calculate net asset turnover ratio?

Answer 22

Net asset turnover ratio = Sales revenue ÷ average capital employed (Share capital + Reserves + Non-current liabilities OR Total assets − Current liabilities)

Question 23

How to calculate current ratio?

Answer 23

Current assets ÷ current liabilities

Question 24

How to calculate acid test ratio?

Answer 24

Acid test ratio = (Current assets - Inventory) ÷ Current liabilities

Question 25

How to calculate the gearing ratio

Answer 25

Gearing ratio = Non-current liabilities ÷ (Share capital + reserves + non-current liabilities)

Question 26

How to calculate the debt-to-equity ratio?

Answer 26

Debt-to-equity = Total liabilities ÷ Total equity

Question 27

How to calculate the interest cover ratio?

Answer 27

Interest cover ratio = Operating profit ÷ Interest expense

Question 28

How to calculate dividend payout ratio?

Answer 28

Dividend payout ratio = (Dividend announced for the year ÷ profit after tax less any preference dividends) X 100%

Question 29

How to calculate dividend cover ratio?

Answer 29

Dividend cover ratio = Earnings for the year available for dividend ÷ dividends announced for the year

Question 30

How to calculate dividend yield?

Answer 30

Dividend yield = (Dividend per share ÷ Market value per share) X 100%

Question 31

How to calculate earnings per share (EPS)?

Answer 31

(Profit (after tax) less preference dividend ÷ Number of ordinary shares in issue) X 100

Question 32

How to calculate Price/Earnings ratio?

Answer 32

P/E ratio = (Market value per share/ Earnings per share) X 100%

Question 33

How to calculate goodwill at acquisition?

Answer 33

Goodwill at acquisition = Cost of investment – Parent’s share of acquired net assets [at FV]

Question 34

How to calculate goodwill at reporting date?

Answer 34

Goodwill at reporting date = Goodwill at acquisition date – Accumulated impairment losses.

Question 35

How to calculate Non Controlling Interest?

Answer 35

NCI = NCI% X Net assets of S at the balance sheet date

Question 36

How to calculate Goodwill in the presence of NCI?

Answer 36

Goodwill = Purchase price – % of shares owned * fair value of S’s net assets

Question 37

How to calculate PURP using mark and and margin?

Answer 37

Unsold inventory = unsold inventory X (mark up ÷ (100 + mark up)) Unsold inventory = (margin ÷ 100)

Question 38

How to convert between mark up and margin?

Answer 38

Markup = Margin ÷ (1 - margin) Margin = Markup / (1 + markup)